Rubber producers are facing further downward pressure on margins in the near term as disproportionate change in cost and prices coupled with sluggish demand created a disbalance in the rubber economy.
After a bearish 2022, while some transitioned to alternatives, others struggled to keep the ball rolling. On average, TSR prices for January to April 2023 is around 22-24% lower than last year, the cost of production has not followed through a similar correction.
All producers’ margins significantly lower than 2022 levels
There has been a significant drop in the margin level for all the producers, irrespective of the origin triggered by the rise in cost and forex. In addition, the massive correction in processed rubber prices made the situation worse.
The African producers took the majority of the hit as the fleeting demand from Europe and the US impacted the TSR pricing, which, coupled with other factors, resulted in a massive drop in margins.
Non-uniformity in Indonesian producers’ margin leads smallholder transitioning
A relatively better demand and prices failed to boost the confidence of the Indonesian producers in the first four months of 2023. Even though processed rubber prices have risen by around 5.5% in April compared to December 2022, its position was at the bottom of the list in terms of price.
The competitive edge that Indonesian rubber has was largely due to imports of raw material by some larger producers to lower cost.
Thailand might have to wait longer to see better cost
Thai producers saw a steep rise in the cost in April, largely driven by the surge in raw material prices, which was further amplified by the appreciation in Thai Bhat. Raw material prices in April saw a rise of 5%, while Thai Bhat appreciated by 1% against the US dollar. In addition, with the upcoming general elections, traditionally, there is some upward bias in the prices
Africa manages to stay in green
African producers also maintained their edge over the other producers in 2023, but they did see some impact on the margins due to downcast demand conditions. Amid wintering impacting the raw materials supply, the production cost was expected to see a northbound movement. However, some depreciation in the West African Franc could occur with a correction in the raw material prices; the cost dropped in April compared to March.