Arusha – Hello and welcome to Helixtapping the industry, a series where we examine the forces driving the rubber markets today. I am Arusha Das, Head of pricing, data, and research of Helixtap Technologies.
I am joined today by my colleagues, Farah Miller, the CEO and co-founder of Helixtap Technologies, Alvin Chew, Director, Data and Business Development of Helixtap Technologies, and Tazkiah Baaquie, Communications Associate of Helixtap technologies.
Arusha – Hi guys.
Farah – Hi Arusha
Alvin – Hi Arusha
Tazkiah – Hey Arusha
Arusha – So you guys are just back from World Rubber Summit, which is a major gathering for the rubber industry participants.
Farah – Yeah, that’s right. It was good to interact face to face with everyone after almost 2 years of virtual life.
Arusha – What was the vibe like Farah?
Farah – Well, with the surge in volatility, everyone now is increasingly looking at ways to reshape and rethink the rubber business model. Be it from the suppliers or the buyer’s perspective or the necessity to tackle climate change and its risks. Another vital topic of discussion was the much-needed transformative changes the industry requires around sustainability and digitization.
Arusha – So, in this current market condition, I suppose the key is to see some consistency in demand which took a couple of shocks in quick successions lately. Alvin, I would like to ask you what does the demand scenario look like, especially for Tires, given the Automotive sector didn’t get any time to recover?
Alvin – The demand, especially from the tire sector, would need a couple of years to reach the pre-covid levels.
According to Robert Simmons, Director of Tyre & Rubber Research at LMC international, the new vehicle sales have been hit by various global events – for example, covid19, semi-conductor shortage, and the war in Ukraine – all affecting the economic outlook and the propensity to spend.
They estimate that it would likely take up to 2024 before we can see new vehicle sales back to pre-covid levels – with expected slower growth in advanced economies and stronger growth momentum from emerging economies.
However, the replacement tire markets have been more resilient and recovered strongly in 2021. But higher fuel prices will affect sales of replacement tires in 2022.
Simmons noted that a drop in fuel prices usually has little impact on driving habits and subsequently a small increase in miles driven, as in you don’t suddenly drive more just because it is cheaper to do so.
But conversely, an increase in fuel prices will, on average, have a larger impact on miles driven – this was seen clearly in China and the US.
In China, miles driven measured by km driven has climbed back up to pre-covid levels as people opted for their own vehicles during covid to minimize human contact – in fact total taxi journeys were still lower than in pre-covid time.
But the worrying thing is that the overall trend for miles driven in China has been declining once since 2010. So less miles driven could translate to less demand for replacement tires and consequently less global rubber demand.Lastly, what was worth noting is that traded tire volume, particularly from low-cost origins, has increased, placing pressure on tire production in the developed market. Advanced economies are using tariff barriers to protect their production – but the overall trend might be that tire production is moving over to emerging markets – from the high cost of production to low-cost production.
Such a long-term trend would have an impact on trade flows of both natural and synthetic rubber. We might start to see less rubber being exported to advanced economies but staying put at its origin-destination for tire production before exporting the tires to the US, Europe, or Japan.
Arusha – A possible shift in the trade flow? That would send the industry back to the drawing board especially in regards to the business model,
How is the industry looking at the supply situation now Alvin. We all know climate changes have been wreaking havoc lately like the one we saw in Thailand in November last year.
Alvin – Climate change is indeed knocking harder at our doors, Arusha. Coincidently, the weather has been brutally hot and humid in Singapore over late May.
How climate change would impact rubber production is a big topic for the present and the future and was a key point of discussion at the Summit.
Dr. Eric Gohet from CIRAD, the agency for agricultural research for sustainable development, highlighted that there would be a global decrease in areas suitable for rubber plantations without any climate limitations. This would worsen, especially during the second part of the century, from 2050 to 2100. So we have enough time to prepare, adapt and do something about it.
However, the overall key message is that with the climate potentially moving to a warmer marginality, it is uncharted territory for us human beings and the rubber trees.
Even though his paper on the climate marginality index was written in 2015, the findings are still relevant as it maps how the various IPCC scenarios will affect natural rubber production in production nodes like Thailand, Indonesia, Vietnam, India, Cote de Ivoire, and Brazil.
The impact is likely to be less on countries with large coastal borders like Indonesia, Vietnam, and Thailand. There could even be an increase in suitable areas in some countries like Brazil, Vietnam, and India.
An increase in the frequency of extreme events would increase in all areas – which means tapping activities or production might be affected.
And also, climate change will likely increase the length of the immature period of the rubber trees, and dry seasons could be more prolonged and more intense.
Arusha – Sounds like going ahead we might see a supply deficit.
Talking about supply and production, ANRPC estimates that smallholders account for 90% of the rubber production. As Farah said earlier, the industry needs to rethink its business model; Tazkiah what were the thoughts about improving the situation for the smallholders or enhancing yield?
Tazkiah – I think this has been a growing concern as the industry moves towards a more sustainable outlook, but it definitely came to the forefront during the covid-19 pandemic because so many underlying, unsustainable practices were exacerbated to the point where they just couldn’t be ignored anymore. Collaborative business models that increase the security of smallholders were discussed extensively during the world rubber summit this year, from supporting financial stability through microfinancing by the CFC to more long-term goals through education by PEFC. I think, thankfully, the industry is at a state of inflection where it is actively choosing to support ESG initiatives and alleviation rather than focusing solely on yield and productivity.
Arusha – While we are on the topic of the smallholders, We all know that they are an integral part of the rubber economy. The industry had strived to have a sustainable rubber economy, but nothing substantial has happened yet. So, Tazkiah, what were the views of the industry leaders on the same?
Tazkiah – I believe good things take time, and a leader in any industry can recognize that a solid foundation is fundamental in bringing about sustainable change. Creating long-term solutions was definitely at the crux of what industry leaders shared at the summit this year. But yes, you are right, we have unfortunately not seen any substantial change yet – the keyword being ‘yet’. At this point, i think it is important to contextualize ESG efforts because we are indeed past the point of discussing them in abstract, and arguably academic, terms – we want to see some tangible change, don’t we? I think it is operationalising these ESG goals into measurable metrics that has taken more time than anticipated, not only in terms of the time it is taking to reach an industry-wide consensus (if we ever do!) but also the implementation processes. There are multiple metrics and the multiple bodies that execute them – so it sometimes boils down to choosing the best fit for your business needs. And sometimes, as we observed at the summit this year, the best fit is not necessarily to focus solely on smallholders, and it would be a bit reductive to expect otherwise because there are other unsustainable practices that need to be addressed, such as climate change as you’ve already mentioned.
While the covid-19 pandemic has scarred us all in one way or another, it has revealed immediate unsustainable gaps in probably every industry, many that link to the global supply chain crunch. Applying this to rubber and this year’s summit, we saw some creative solutions to these immediate problems. A poignant example that comes to mind is the presentation by Mr Gajendra Singh, founder of Omni United, who discussed how their brand, Radar Tyres, became the first tyre brand to be a 100% carbon neutral in late-2013. He highlighted using market intelligence on consumers buying behaviours in different geographies to pivot to different suppliers along their supply chain to achieve carbon neutrality. Essentially, figuring out who was willing to pay more for a carbon neutral product and who wasnt. Indeed, this shows how data is crucial in meeting ESG goals, but more importantly, it is the ability – be it through industrial expertise or AI slash machine learning – to analyse big data to find the suitable points that apply to your company’s specific sustainability goals and/or problems that separates the companies who just talk the talk from the ones who actually walk the walk.
Arusha – So clearly data would have a major role to play when comes to revamping the rubber ecosystem. So to have a cohesive eco-system, digitization would be vital. Farah, what was industry’s view on this.
Farah – It seemed to be a core focus for quite a few of the large tyre companies and producers. Some of the presentations focus on Internet of Things, others on big data and machine learning (which we as a company have put front and center) and some even talking about the innovation within the types of hevea trees that can be grown.
Arusha – You, too, spoke about the role of data in ironing out the inefficiency in the value chain.
Farah – Yes I spoke about how data and technology were critical in helping companies achieve sustainability goals.
There are 5 main areas where you need better data in relation to ESG:
First is to understand your exposure – what’s the baseline. This is important so you can track any improvements year on year.
Secondly, this is followed by modeling alignment to see where you are against the commitments you have made as a firm or publicly.
Third comes managing risks. For example, utilising data to understand if your suppliers or customers are aligned with your goals and to decide how to move forward or work together to reduce associated risks if they aren’t.
Another crucial aspect is to spot new opportunities. ESG is not just a box ticking exercise nor just a compliance activity. Good data allows you to pick future winners, future opportunities. Or even look within your own firm on areas of growth, which you can double down on.
And finally, since companies now have to adhere to ESG reporting requirements and you need high quality data to properly address this and accurately reflect this to the various stakeholders.
Focusing on execution, we can already accelerate the process:
For rubber, we are a part of the container shipping industry which ships 80% of the world’s goods. If you’re looking at carbon footprint, out of the 200,000 vessels available, in your scope 1,2,3 emissions part of your net zero target is the footprint you create. You can then choose the most effective vessel, and the most efficient port, or distance even. It will come into their pricing and services if it’s driven by regulators and customers.
For Helixtap, we are in a unique position where we have built these data sets, models and foundational levels of alternative data and a diverse community to be able to drive and accelerate the process both for corporates and smallholders. Technology allows for personalization on the scale, and this means different interests can be catered to and pre-empted to drive better engagement.
Arusha – So it looks like driving sustainability through process optimization or digitization is the go-to strategy for the rubber industry now. I believe businesses are recognizing this shift.
So, whether be it while acting on climate issues or attaining a circular economy, businesses’ reliance on technology and data is surely in the spotlight.
Arusha – Thanks, guys for joining us today on Helixtapping the industry
Farah – Thanks, Arusha.
Alvin – Thanks, Arusha.
Tazkiah – Thanks, Arusha.
Arusha – If you enjoyed today’s episode, let us know at marketing@helixtap.com!
For more updates on the Rubber industry, please check out www.helixtap.com, and you can also follow us on socials under the handle Helixtap.
Thanks for tuning into “Helixtapping the Industry”. Until next time!