Malaysia News Service – For decades, oil palm has been this country’s golden crop.
In contrast, several factors – including less attractive rates of return – have caused rubber to fall out of favour with plantation companies. However, three recent developments suggest Malaysian policymakers should stop treating rubber as a stepchild.
First, The Nikkei says weak demand for cars and intensifying competition from low-cost rivals like China has prompted major Japanese tyre manufacturers to rethink their decades-long dependency on petroleum-based synthetic rubber and to take a fresh look at natural rubber.
Bridgestone has launched a new "half-weight tyre" project that uses materials other than synthetic rubber. As its name suggests, the project will reduce the weight of the tyre to enhance fuel efficiency significantly. The company is also developing "bio-rubber" – a plant-based product to replace synthetic rubber, The Nikkei reported.
Similarly, Sumitomo Rubber Industries hopes to produce commercially viable tyres without synthetic rubber by 2013. By adding oxygen, it has created an "improved natural rubber" with a molecular structure similar to synthetic rubber, the Nikkei news report says.
What the Nikkei news report underscores is technological improvements by major Japanese tyremakers coupled with expectations of higher oil prices are enhancing natural rubber’s competitiveness against synthetic rubber.
Second, powered by a strong economy and Beijing’s policy to boost sales of small cars, China looks set to overtake the U.S. as the world’s largest car market.
According to the China Association of Automobile Manufacturers, car sales rose 82% to 1.14 million units in August. Although car sales in the US totalled 1.26 million units – exceeding the figure for China – many analysts say these figures were boosted by Washington’s "cash for clunkers" programme.
Admittedly, a drop-off in sales is expected in both countries next year. But the dismal U.S. economy coupled with continuing rising unemployment suggests the decline stateside could be sharper.
J.D. Power predicts Chinese consumers will buy more than 11.4 million vehicles annually by 2015 based on one fact: the U.S. has about 820 vehicles for every 1,000 people while the comparable figure for China is about 34 vehicles.
Similarly, low car ownership of about nine vehicles per 1,000 people, sustained economic growth in the subcontinent and the recent launch of the Nano highlight the long-term growth potential for car sales in India.
Not only is the Nano the cheapest car in the world – priced at about US$2,000 (RM6,782) for the standard version – it is only about three times that of a low-end scooter. This could help accelerate the switch from scooters to cars in India.
Rising car sales in populous and turbo-charged economies like China and India underline the fact that demand for cars – and by extension for tyres and for rubber – will outpace that in the U.S. and in Europe.
Third, a Reuters news report says Malaysia risks becoming a net importer of rubber within a few years as rubber trees in this country age and more smallholders shift to oil palm.
Malaysia’s imports of natural rubber could rise by 40% to 700,000 tonnes this year and next year, the Reuters report predicts. Improving demand amid tight supply has caused the benchmark Tokyo rubber futures contract to jump by more than 85% from its December low to about ¥200 (RM7.56) currently. In the same period, palm oil futures have climbed 39%.
Despite better prices, smallholder Zaini Hanafi in Kedah – in an interview with Reuters – says his 2 hectacre plantation is likely to bring him between RM6,000 and RM8,000 this year. If he replanted his land with oil palm, he could earn up to RM40,000.
Also, planting oil palm offers better returns. Land planted with oil palm yields 10 tonnes a hectare annually while the corresponding figure for rubber is a meager 1.4 tonnes, the report points out.
In a bid to cut imports, the Malaysian government recently imposed a rubber levy of four sen a kilogramme and says the funds raised will be used to boost output of rubber.
However, Aliasak Ambia, president of the National Association of Smallholders says the government must take more drastic action and before it is too late, the news agency reports.
SMR 20 is a top-quality Malaysian rubber used to make tyres. But a shortage of Malaysian SMR 20 could prompt the world’s biggest tyremakers – France’s Michelin and Japan’s Bridgestone – to shift to other Thai and Indonesian grades, a regional dealer in Singapore says.
In short, unless Malaysian policymakers act decisively and quickly, this country won’t be able to benefit from the expected surge in demand for natural rubber.
