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Published on August 13, 2007

Thailand's rubber-manufacturers, the world's biggest rubber-exporters, are worried about their survival because the strong baht and tougher competition have brought down trade value and ruined their competitiveness.

Rubber prices in the world market plunged 30-35 per cent to US$2,240 (Bt77,730) per tonne for rubber smoked sheet (RSS3) in July this year, forcing Thai exporters to lower prices to remain competitive. The exporters are also under pressure from importers to cut prices due to the strengthening baht.

The currencies of rival rubber exporters have appreciated much less than the baht. For example, the Malaysian ringgit has only appreciated 10 per cent since early this year, compared to the baht's 18 per cent.

Vorathep Wongsasuthikul, president of Thai Latex Association, said the baht's strength has had a domino effect on both export and domestic prices. The drop in export price had caused the domestic price of natural rubber to slump 30 per cent to just below Bt70 per kilogram in July, compared with Bt105 in the same period last year. The price is currently Bt65 per kilo, down from Bt80 in January.

Vorathep said Thai rubber exporters had to reduce their prices to match exporters from Indonesia, Malaysia and India, whose currencies have not appreciated as much as the baht.

Thai exports account for 34 per cent of the world rubber market. The Commerce Ministry reported rubber exports of US$2.5 billion in the first half of this year, a 3.9-per-cent increase over the same period last year. Thailand's rubber exports for 2006 rose 45.3 per cent to $5.39 billion.

The association said that Thailand accounted for 1.88 million tonnes of the global latex production of 5.75 million tonnes last year, followed by Indonesia with 1.5 million tonnes and Malaysia with 0.74 million tonnes.

Vorathep said the baht's rise had hit the entire rubber industry, from downstream to upstream production (from growers through to manufacturers of latex and finished products).

"The stronger baht has not only hit exporters and manufacturers hard, it has also reduced rubber growers' incomes. When rubber manufacturers cannot quote high prices, they have to seek lower prices from farmers," said Vorathep.

The stronger baht has prompted both manufacturers and exporters to hold on to stocks in the hope of the price going up. However, this is not only creating a cash-flow problem but also the risk of higher losses as there is a declining trend in export prices.

Many small rubber manufacturers are losing financial flexibility as they have lost income due to the baht's rise and cannot bargain for a sale price that covers their production costs, he said.

Of the more than 140 manufacturers in the Thai rubber industry, about 70 small and medium-sized enterprises are facing a financial squeeze.

Vorathep said that to maintain export competitiveness, the government must protect the baht from daily fluctuations. The baht's appreciation did not reflect healthy economic fundamentals as it hurt the real sector, he pointed out.

The stronger baht had only benefited short-term speculators, and was not helping improve productivity or industrial efficiency, he said.

Besides the baht problem, the rubber industry is also facing competition from synthetic rubber. The high cost of natural rubber has forced many manufacturers of rubber products to turn to synthetic rubber.

Although demand for rubber is expected to increase gradually due to the growing world population, many industries are turning to synthetic rubbers because of the lower cost. Only surgical gloves and condoms require natural rubber as raw material; other products can be made from synthetic rubber.

The price gap between natural and synthetic rubber is about $300 per tonne - natural rubber is $2000 per tonne while synthetic rubber is $1,700 per tonne.

To ensure sustainable development of the rubber industry, private enterprises and the National Science and Technology Development Agency (NSTDA) will propose that the government set up a Thai Rubber Board to operatethe industry.

Vorathep said the plan should be implemented by the next government. The Thai Rubber Board will operate independent of government control and aim to consolidate Thailand's position as the world's leading rubber supplier.

The private organisation will cover all operations from plantation to export, as well as support research and development, and stabilise prices.

Achara Pongvutitham,

Petchanet Pratruangkrai

The Nation