Producers and consumers of NR
By David Shaw, CEO, Tire Industry Research
Every year the International Rubber Study Group holds a meeting of NR producers, rubber traders, tire makers and others. In recent years it has taken place in Singapore. Many of us have just returned and I wanted to outline some of the discussions that take place at this very high-level meeting.
It is the key meeting point in the world for stake-holders in the world’s natural rubber (NR) industry.
I am passionately interested in the progress of the world’s natural rubber industry. To my mind, the NR industry and the global tyre industry are linked in a mutually-dependent symbiosis. Neither can do well without dialogue and deep engagement with the other side
However, whenever I write about natural rubber, my readership numbers fall. This makes me think that the world’s tyre industry is losing patience with the NR producers.
I spent a year of my life carrying out deep research into sustainability in the tyre industry, and it is clear that the NR business is intimately bound up with the future sustainability of tyre makers.
One of the strengths , and also one of the weaknesses, of the tyre industry is that after a few years in this business, people tend to remain. I have been writing about tyres and the tyre industry for around 30 years. I still have much to learn. I am not alone in this length of service. There are plenty of people who have been doing it for longer than me and who know a great deal more than I do about NR and tyres and many other aspects of this business.
For better or worse, many of us who have been in the industry for a few decades have developed entrenched positions.
And this, I think, has led to the current impasse between NR producing nations and NR consumers, primarily in the tire industry.
Price and politicians
Another aspect is price. Agriculture Ministers in Indonesia, Malaysia, India and other countries are acutely aware that rubber tappers make up a sizeable proportion of their voters. When the price is high, those people tend to keep governments in power; when the price falls, they want to kick the existing government out. Thus, the price of NR has a profound influence on fortunes of individual politicians in many countries in S E Asia. Those politicians, of course are acutely aware of this sensitivity.
We have already noted that understanding the complexities of the NR business takes a few decades. Most Ministers do not have that amount of time to learn about the industry. As a result, those politicians often want quick fixes to the issue of low NR prices.
Traders and speculators
Tire makers, above all, want a stable, predictable price for their raw materials. The same is true of the farmers and the politicians. We can argue about the level of the price, but both ends of the value chain would dearly love to see stability in the price, so that they can plan for the future.
Rubber prices are set on markets such as the Singapore Exchange (SGX), the Tokyo commodity exchange (TOCOM) or the Shanghai Futures exchange (SHFE). I the case of India it is the National Multi-Commodity Exchange (NMCE) as well as the auctions in Kochi and elsewhere.
Those who participate in SGX or TOCOM are professionals. They make a part of their money by working out how markets are likely to move and using a range of tools from spot purchase to future, options and other derivatives of the spot price to make money.
They are often portrayed as the bad guys in the arrangement as they are the only link in the chain who enjoy prices that moves quickly from low to high or high to low.
This is a misunderstanding. Increasingly, these large trading houses are consolidating and performing a much wider range of functions in addition to pure trading. The role has broadened so that in addition to being a logistics partner, most have taken on the role of quality inspector; teacher to smallholders; advisors to governments; managing traceability of the materials they supply and so on.
A decade or so back, there was a trend toward identifying corporate risks and seeking to manage risks that might threaten the future business model of various large corporations around the world.
Whenever a tyre maker carried out a corporate risk analysis there was one issue that came top of the list Natural Rubber. With geographic risk (97% of the materials is made in S E Asia); disease risk (h. Brasiliensis is a single species); price risk (the price doubled in 2009 and doubled again in 2010); climate risk (S E Asia has suffered floods and droughts as a result of climate change) and many other risks, tire companies sought to find ways to reduce their dependence on NR.
New willingness for dialogue
If there was a theme for the IRSG meeting in Singapore, it seemed to be about dialogue. The tire makers are under extreme pressure to improve the traceability of the NR sourced from SE Asia to prove that they do not contribute to de-forestation.
The schemes to date have proved ineffective. However, I detected a new willingness among all participants tyre makers; traders and suppliers as well as governments and also the Civil Society groups to take the issues of sustainability seriously.
I can see some kind of future emerging in which tire makers work with the traders and processors to educate smallholders in good practices to improve yields and quality. I can see the role of purpose-designed Apps to collect data on the origin of each kg of NR and then feed those into a database to permit full traceability. I can see a new willingness on the part of the producing nations to engage with the tire makers over technical improvements and dialogue.
I see some tyre makers engaging fully with Civil Society to improve the life of rubber tappers.