Skip to content

PODCAST – 2022 Reflections

    Helixtapping the Industry
    Helixtapping the Industry
    2022 Reflections

    Farah – This year was quite an eventful year. We saw geo-political tension and China’s Covid policies wreaking havoc in the market. Rising energy costs with high fertilizer prices, combined with price volatility in rubber markets, created a very challenging environment for the producers and their survival.

    While it doesn’t represent the “pivot” that the matured markets are looking at a sustainable ecosystem, it does represent some important transitions happening in the rubber industry. 

    Hello and welcome to Helixtapping the industry, a series where we examine the forces driving the rubber markets today. I am Farah Miller, CEO and Co-Founder of Helixtap Technologies.

    This episode, I will be representing the Innovation team of IRSG Next Generation Rubber Leaders (the NRL) and interviewing some of my teammates. Broadly speaking, the NRL community builds on creative ideas and the innovative potential of the next generation to challenge conventional thinking and explore new strategies for the future of the whole rubber sector. Our 13 participants in the inaugural program have outlined 3 key development issues namely, sustainability, innovation and diversity. 

    The innovation team focuses on promoting discussion and thought leadership and fostering and encouraging innovation amongst the rubber industry. Based on the diverse experiences, each of us aim to be champions of innovation within our own organizations and the wider rubber industry. 

    I am joined today by Desmond and Linda. Desmond has been in the rubber market with Southland for 10 years and Linda has a PhD in Chemistry and applies her knowledge at Tyre Stewardship Australia as the Science and Innovation Advisor. 

    Today, I will be picking their respective brains on a few key topics – a timely reflection as we reach the end of the year.

    Farah – Hi Desmond and Linda, welcome to Helixtapping the industry.

    Linda – Hi Farah, glad to be on today.

    Desmond – Hi Farah, happy to share my thoughts.

    Farah – Before deep diving into the conversation, let’s start with a little about yourselves, your time in the rubber industry, and what makes you guys passionate about it

    Desmond – Started in SGX as product manager of rubber. Fell in love with the product. As a ex trader in bulge bracket banks, was interested in exploring physical trade. Hence when the opportunity came up in Southland, I was humbled to be given a chance to join the physical trade and Southland. And in the blink of an eye, I think I’ve been there for 10 years now.

    Linda – I’m from Australia and have worked on a variety of different research areas during my research career and PhD, including projects related to polymer chemistry. This has definitely spiked my interest in the field of rubber chemistry. Whilst I enjoyed the research I was doing previously, I was interested in diving into projects that had a closer impact on the environment and the community. It is really great to have the opportunity in my work to support research and innovation in the reuse and recycling of various rubber products, such as tyres. 

    Farah – Thanks both – it’s always lovely to hear what makes people passionate about the rubber industry. 2022 has been a phenomenally challenging year. Businesses worldwide got impacted and coupled with a lot of changing dynamics as well. The starkest one for rubber was the Indonesian market. A producing country importing different materials, shutdowns and prices all over the place. Desmond, given your experience, What were the key challenges for the Indonesian producers, according to you? 

    Desmond – I think over the years, based on study by the industry, we can see that farmers have been living below the living wage. This led to a lack of fertilizers and protection for rubber trees over a long period of time. Hence within the Indonesian rubber industry itself, we have seen the yield dropping over the years. So this vastly affected the price of the raw materials for the producers. Besides that, the other big impact was during the Covid period, other commodities prices have actually increased much more than rubber. Especially palm because Indonesia is the world leading palm oil producer. So this led many people in the industry to switch over from rubber to palm. This has led to the cutting down of rubber trees. Or even for the labour itself, people are moving to work in the palm industry instead of the rubber industry. In addition to that, the gestation period for new palm trees is actually shorter than rubber trees – 5 years compared to 7 years. So then even if there is any new planting or even when people cut down old rubber trees, the replanting tends to take place as a conversion to palm instead of rubber due to the shorter gestation period. I think all in all, all these factors have resulted in a lower supply of raw material leading to higher costs for the producers. Yet as we have seen for rubber in the past few years, the selling price has continued to remain quite challenging in the lower bound range. Which is why, in the last two years especially., we started to see many closures of rubber factories in indonesia. 

    Farah –  Given the above situation and Indonesia adapting by importing African raw materials – Is Indonesia walking Malaysia’s way? We did see Halcyon partly changing hands again. Do you think more mergers and acquisitions are in the pipeline in 2023? 

    Desmond – The example for the reference that you referenced in malaysia is quite timely, but i would see the rubber industry of indonesia slightly different from indonesia and these are the few reasons why. I think number one, Indonesia itself still have a very youthful population. Henceforth in the rubber industry itself, is still the Indonesian being employed in this industry. So ultimately the rubber industry is still important to Indonesia, because it is still a big commodity product for the country and also employs a lot of people. Whereas for Malaysia we can see that mostly in the rubber factory itself is more or less done by foreigners coming from overseas working there. Added to that I would say for the International Tire Makers, indonesia in my opinion continues to be an important source of supply, this is because due to the geography of Indonesia, unlike any other producing countries like Thailand or even Africa as you have mentioned. You can actually get a consistent supply of rubber throughout the year, because throughout the year different parts of Indonesia will be wintering but you will have other places which are not. Where else if you depend on african or thai rubber, there are certain months where it goes to wintering where you will have very little supply of raw material. 

    So for the tyre plants, what I think they need is a consistent supply of rubber, to keep the tyre plant production ongoing. Henceforth Indonesia continues in my opinion to play a big role. But of course notwithstanding the above, challenges do remain for the Indonesian rubber industry. One of it is actually the energy cost due to oil price increase, adding to the production cost of rubber factories itself. Added to that global inflation is happening and for indonesia over the last few years, minimum wage has been going up and due to inflation for next year, indonesian government has also indicated minimum wage to go up by an average of 10%. So i think all these factors increases the production cost especially for the indonesia producers and makes the industry quite challenging which is why some factories decided to close. In my opinion we really do need the International Tire Makers to help the indonesia producers to keep the upstream sustainable. 

    Of course with regards to the question, I would think more M&A would occur. Why this is so is because the price of prime factories compared to the peak period around the 2017, 2018, the price has actually adjusted quite a fair bit from the peak. So this actually presents some opportunities at the right price in the right place. So I feel at the current level, it begins to get interesting which is why you hear of people looking at opportunities and wondering to see if it’s a good time to enter. But all in all in Indonesia the capacity is still over supplied compared to the amount of raw materials available. In the not too far future, of course we hope the Indonesian government will continue to do the replanting, helping to get the yield up and with the support of the International Tire Makers support in the upstream, we can still keep the industry sustainable for everyone. From the farmers to the rubber factories.  

    Farah – Thanks Desmond for sharing your in depth knowledge, on a more macro front, do you see any shift in buying with the changing dynamics on the producer’s side. I understand Africa despite sustainability is gaining a lot of interest.

    Desmond – Price is always a challenge and would definitely motivate the buyers to source for more cost effective rubber from other sources. This is the nature of markets. Despite that, when we look at Africa, what I can see is in africa itself now there are many new investments, with the building of many new factories. So I think in the not too distant future we might start seeing overcapacity in terms of the factories in Africa. Why this is so is because due to the concerns on CSR and deforestation, the NGOs are looking at africa closely or there is a movement or not for the forest to be cut down. Whether it’s to plant rubber, palm or other commodities.  As long as there is no new planting, I believe the demand and supply of rubber would regulate and meet at a point in the not too far future.  

    Farah – Yeah, based on my team’s research we’re reaching the end of the cycle.

    Talking about sustainability, ld like to get your view Linda. The EU deforestation law created a lot of stir in the market. How practical is the implementation of the same in a fragmented industry like rubber? 

    Linda – it’s a great question. I think as we see these types of regulations emerge, it puts more pressure on industries such as the rubber industry to push to meet these regulations or seek their business elsewhere. As a globally fragmented industry, it will be very difficult to implement a similar strategy, particularly in areas of the world where sustainability targets such as these are currently not at the top of the priority list. However I am an optimist, and I think with the right support and mechanisms globally, as well as industry advocates from global teams like ours, the PEFC, the IRSG and others, there is the potential to see progress in deforestation rubber sustainability on a global scale.

    Farah – I agree, from my perspective perfection should never stand in the way of progress. What are the key bottlenecks in building a circular economy for rubber and who according to you would be the beneficiaries and the losers. 

    Linda – Some key bottlenecks would be technology readiness, uptake from the tyre and rubber industry and embedding circular mindset into the entire rubber value chain. 

    Whilst tyres back into tyres is the ideal circular economy for rubber in this industry, the materials are often difficult to recycle and a lot of processing is required to reach that point. This technology is beginning to emerge in isolated pockets of the world, but a global effort is required to truly embed circular economy practices into major products. 

    Furthermore, it is not just a circular economy for the first life of a rubber product, but a circular mindset for every rubber product created through the second, third and infinite life of these rubber products. How can we ensure these new innovations for reused rubber don’t just push the issue down the line, but instead build circular design into the process? 

    I believe it’s possible that the entire rubber value chain would benefit from this, as the rubber would remain in circulation for as long as possible, manufacturers can retain a sustainable material, and users would have credibility that their products are truly sustainable. It is difficult to say what impact this would have on the natural rubber industry and smallholders, because as we move into a circular economy, this would reduce demand for virgin resources. However circularity is also about efficiency and sustainability of virgin material like rubber, so natural rubber farmers have the potential to play an important role and pioneer in this area.

    Farah –  thanks Linda. indeed, from my perspective heading up Helixtap which is a data company, the millions at the upstream level and fragmentation is where I think we can tap on to technology to help to start to unpack and embark on traceability. Desmond, what do you think would be the impact on the prices if there is a shift to sustainable rubber happening? 

    Desmond – I believe that the main impact from sustainable rubber will help the trade, especially the upstream to be sustainable. Because all these help we could actually pass it onto the farmers, to help them reach a living wage. So that’s when the industry could continue to sustain itself. When we look at the question of price, we can see that price is dependent on many factors and as we have seen in the volatility of rubber price over the last few years. Hence I think sustainable rubber could be a driver for any price increase but it is just one of many.

    Farah – Yes,  the market forces always wins and as we’ve seen in various iterations, an arbitrary support level for prices does not stop prices from going down if demand is lackluster. 

    Looking ahead to 2023, I would like to ask all of you what in your views would be the game changer next year – Lets start with you Desmond. 

    Desmond –  From the price point of view, I feel 3 factors are driving demand and sentiments.

    1) Fed – Interest rates because it directly affects funding costs, affecting the cost of production for factories itself

    2) Covid-19 policy in China because china consumes about 40% of rubber supply 

    3) Ukraine-Russia war – energy. Due to the war oil prices have went up affecting production cost. Europe is also an important market for rubber demand, as the war affects the sentiments in the european market, affecting consumption

    On all 3 fronts, being an optimist, I hope the worst is over and things will resume more normalcy in 2023. 

    Farah – Thanks Desmond, agree – this week prices seem to be supported despite the protests in China, which could mean things are starting to stabilise. How about you Linda, what would you view the gamechangers to look out for next year? 

    Linda – I think the increase in awareness and impacts of climate change are going to drastically change the game as well. Firstly, on a production level, ensuring that the industry is resilient enough to deal with extreme weather events. And as the world places a higher priority on climate change policies, this will increase the pressure to produce sustainable products, place a higher value on carbon emission reductions, and increase resource efficiency and circularity. 

    Farah – Yup, if we look at the recent COP27, Transportation and industrial sectors are among the top 3 industries that emit the highest CO2 emissions. For the transportation sector of which tyre and automotive companies are a large segment of, 8.4Billion MT of CO2 were emitted last year. 

    All major developing and developed countries on average need to reduce emissions by 50% to get anywhere near the global 2050 target.

    Wrapping up, thank you to both Desmond and Linda for your insights today on the rubber market, sustainability and the major topics going into 2023. 

    Desmond – Thanks for having me and happy holidays!

    Linda – Welcome, wishing all a great year ahead!

    For more details about the IRSG Next Gen program you can head over to www.rubberstudy.org/nextgen-rubber-leaders.

    To join Helixtap’s waitlist for early access to our ESG data or to view what kind of research, physical prices data and trade flow information we already have you can reach out to us at marketing@helixtap.com.

    Thank you for tuning in to “Helixtapping the Industry”. Until next time!