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Indonesia is the second largest producer of natural rubber in the world after Thailand. In 1995, Indonesia earned US$1.92 billion from rubber exports mainly RSS (Rubber Smoked Sheet) and SIR (Standard Indonesian Rubber). Lately oversupply pushed the price down and Indonesia earned only US$ 836.1 million from its natural rubber exports although exports grew in volume from 1.3 million tons in 1995 to 1.48 million tons in 1999.

In addition to Thailand, Indonesia and Malaysia which have long dominated the market of natural rubber, Vietnam has emerged as a potential supplier. Vietnam began to grab a considerable market in China and France, which is expected to be its stepping stone to the wider market in Europe.

In October 1999, the International Natural Rubber Organization (INRO) was dissolved and its buffer stock of natural rubber had to be disposed of immediately, but the delay in the release of the stock caused a negative impact on the price of that commodity in the world market until 2000. Consumers have not only succeeded in keeping the price down but also has succeeded in keeping the three largest producers from being united in facing the marketing problem. By December 2000, the price of RSS-I in New York was US$ 36.25/lube slightly higher than US$ 35.63/lube in December 1999.

According to the Indonesian association of rubber companies (Gapkindo) the world market this year would be oversupplied by 500,000 tons. In 2000, the world's production of natural rubber was estimated at 7 million tons or an increase of 373,000 tons from the year before. Thailand contributed 2.18 million tons, Indonesia 1.71 million tons and Malaysia 0.669 million tons to the total production.

Meanwhile, demand in the world market totaled 6.5 million tons, down by 187,000 tons from 1999. The decline in demand caused a decrease in price. In April, 2001, the price of SIR-I in New York was only US$ 33.25/lube or a record low in 10 years, whereas INRO had no more stock left. The price should rise under normal condition with no overhanging stock.

The three ASEAN countries have sought cooperation to shore up the sagging market of natural rubber. The three countries should avoid competition, and they should use the same price and adopt export retention scheme as adopted by coffee producers in the world, analysts said.

Malaysia, which was once the world's largest producer of raw rubber has made fundamental change in the sector by relying on export of processed rubber. It exports only raw rubber having high selling value. Malaysia, therefore, still enjoys substantially large export earning although its exports of raw rubber totals only 800,000 tons a year.

Meanwhile, Thailand uses a incentive in payment system, advantage in geographical position being closer to market and favorable security to boost sales.

In 1996, however, Indonesia still earned a substantial amount of US$ 1.92 billion from an exports of 1.3 million tons. In 1998, exports by Indonesia rose to 1.62 million tons but the export earning dropped to only US$ 1.09 billion. In 1999, exports dropped again to 1.48 million tons valued at US$ 836,1000.
Table - 1
Indonesia's exports of natural rubber,
1995 - 2000 (*))

 Year RSS SIR Total

1995 65,143 1,230,963 1,296,106
 98,317 1,820,614 1,918,931
1996 72,011 1,336,047 1,408,058
 103,470 1,769,229 1,872,699
1997 50,266 1,324,094 1,374,360
 64,535 1,402,259 1,466,794
1998 45,119 1,576,521 1,621,640
 33,833 1,052,562 1,086,395
1999 58,093 1,418,969 1,477,062
 36,687 799,415 836,102
2000(*)) 27,821 888,913 916,734
 25,110 586,592 611,702

(*)) January - August

Source: CBS/Data Consult

The United States the largest buyer

SIR-20 dominates Indonesia's exports of natural rubber. In 1999, exports of SIR-20 totaled 1.29 million tons or 87.2% of the total export volume of RSS and SIR. SIR-20 exports were valued at US$ 716.2 million in 1999 or 85.6% of the total export value.

The United States is the largest buyer of natural rubber from Indonesia. Exports of SIR-20 to that country totaled 590,000 tons valued at US$ 331.5 million in 1999.

Altogether, exports of RSS and SIR to the UNited States totaled 683,754 tons valued at US$ 392.14 million in 1999 or 46.3% of Indonesia's total exports in volume and 46.9% in value.
Table - 2
Indonesia's exports of RSS and SIR
by countries of destination, 1999

Country of destination Volume Value
 (tons) (US$'000)

Smoked Sheets (RSS): 58.093 36.687
U S A 27.870 17.766
China 11.136 6.746
Singapore 4.709 2.929
Japan 4.051 2.606

SIR-3 CV: 42.215 30.547
U S A 27.419 18.225
Italy 5.898 4.066

SIR-10: 68.856 39.845
U S A 25.009 14.854
Spain 8.440 4.599
Singapore 6.265 3.446
Poland 4.687 2.688

SIR-20: 1.290.859 716.225
U S A 589.936 331.484
Japan 118.272 65.997
Singapore 103.095 57.980
South Korea 80.972 45.325
Canada 53.769 30.290
Germany 37.824 21.425
Mexico 34.205 19.413
Belgium 25.786 21.425
Brazil 19.748 10.899
England 19.327 10.092

Other SIR: 17.038 12.798
U S A 13.520 9.806
Canada 1.327 1.025

Total 1.477.062 836.102

Source: CBS/Data Consult

A decision of Ford Motor Company to replace 13 million Firestone tires after an open conflict between the two companies. The replacement of 13 million tires will push up demand for natural rubber now hit by slump.

Free trade puts pressure on price

The issue of free trade has begun to affect the market of natural rubber. The United States as the largest user of natural rubber has decided to reduce its buffer stock contributing the price fall in the past two years. The price of RSS-I dropped from 70 U.S. cents/lb in 1996 to 52.28 cents in 1997. In January the price fell again to 39.5 cents and in April it was only 33.2 cents/lb.
Table - 3
Natural rubber price developments in the world market, 1995 - 2001

 (New York/US$) (Cent/lb) (Singapore/Sin$ Cent/Kg)

1995 78.63 77,44 223,14
1996 70.00 68,74 188,91
1997 52.28 51,16 150,68
1998 38.61 37,01 118,03
1999(*)) 35.63 34,81 121,75
2000(*)) 36.25 35,25 105,69
2001(**)) 33.25 32,25 103,50

(*)) December;

(**)) April

Source: Daily Market Quotations/Data Consult

The slump in the world market caused a price fall in Indonesia. In Jambi the price of 100% slab dropped from Rp 5,300 per kg on January 1 to Rp 5,20 in mid January. In Palembang the price of 100% dry rubber fell from Rp 5,200 per kg to Rp 4,850 and that of SIR-20 dived from Rp 5,830 per kg to 5,394 in the same period.

Production up 2.9% on the average

Observers said that demand from tire industry and rubber goods industry tended to rise while supplies continued to decline as lands for rubber plantations are limited especially in Thailand and Malaysia.

The decline in the supply from the two countries will benefit Indonesia as the country could still increase production and exports. The country, however, need to rejuvenate the crop especially rubber trees in smallholders plantations.

Generally rubber trees are grown traditionally, therefore, productivity is relatively low. Efforts, however have been made to develop rubber plantations using high yield seedlings with modern technology.
Table - 4
Indonesia's production of rubber
1995 - 1999

 Year Production Growth
 (000'ton) (%)

1995 1,535.1 --
1996 1,577.9 2.9
1997 1,548.0 -1.9
1998 1,661.9 7.4
1999 1,714.7 3.2
Average growth 2.9

Source: Directorate of Plantation/Data Consult

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Publication:Indonesian Commercial Newsletter
Article Type:Statistical Data Included
Geographic Code:9INDO
Date:Jun 12, 2001

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