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A Flexible Outlook in the Rubber Industry

May Kunmakara / Khmer Times No Comments Share:
Jef Boedt, the General Manager of Socfin Cambodia. Supplied

Because of the decline in the price of rubber on the global market, the government issued a sub-degree on March 4 to revise the tax scale on exports of natural rubber, which had previously been set at $50 per ton when the export price was below $2,000 per ton.
 At the same time, four major rubber-producing countries – Malaysia, Indonesia, Thailand and Vietnam – decided to cut their supplies by 15 percent for the next six months in an effort to stem the drop in prices. 
With more than 120 years of experience in the agro-industrial sector, the Socfin Group is one of the oldest companies in the world in its field. With offices in 10 countries, the group is managing 15 agro-industrial projects worldwide covering 400,000 hectares and employing 50,000 people. 
Socfin Cambodia, a joint venture with Europe’s Socfin Group, now manages three rubber estates – Sethikula, Varanasi and Coviphama – which consist of a total of 7,300 hectares of rubber trees and an investment of more than $80 million since its implementation in Busra, Mondulkiri, in 2009. 
Jef Boedt, the General Director of Socfin Cambodia, talked to Khmer Times about the company’s investment plans in Cambodia and the current market price and its influence on the industry. 
KT: Why did you decide to invest in Cambodia and what returns does Socfin expect to get from the plantations? 
Mr. Boedt: Business wise, coming to Cambodia was an opportunity to develop our activities geographically. It was also a chance to participate in the resurrection of an activity that Cambodia, back in the 1920s, was actually successfully leading. Indeed, Cambodia was very famous for its red basaltic soils and its excellent qualities for the development of rubber trees. 
In terms of production, we are not at a full capacity yet. Of the 7,300 hectares we have planted, only 500 hectares are producing. We started to produce a year ago, in 2015. With 500 hectares we have been able to produce around 120 tons of rubber. We are planning to have 1,500 hectares producing by the end of this year and a production forecast of more than 700 tons.  Once at full capacity, Socfin in Cambodia will produce about 15,000 tons of rubber a year.  
At this stage of our production capacity, we do not export our rubber yet. We sell it to local factories in Mondulkiri. 
KT: The global rubber price has declined dramatically over the past years. How does this affect your business? Are you planting other crops to deal with the current decline in the price of rubber?
Mr. Boedt: Rubber prices are now very low, about $1,100 (per ton). When we compare to what the prices were back in 2010, about $5,000, the drop is quite important indeed. The current market price is due to two main factors, which are the supply side first, and demand. Focusing on demand, of course China’s economy is slowing down but still has growth. The economic slowdown in China is impacting all commodities, including natural rubber, knowing they consume about 40 percent of worldwide production.  
The other problem for the moment is coming from the supply side. A lot of trees were planted from 2005 to 2008 and are now entering full production. We should also soon see trees planted in the years 2010-2012 entering production. Production has therefore grown faster than consumption in the years 2011-2013, creating an important surplus. 
Socfin in Cambodia has just started its production. At this stage, the economic situation doesn’t really affect our turnover, but definitely impacts our capacity to invest. We have to stay careful and slow down our investments. That is why all non-urgent investments have been delayed until the situation improves. 
With that said, I would like to remind here that we are a company working on a long-term vision. Besides, the rubber industry is a long-term activity itself. Once the planting is done, trees are starting to produce after five to six years and will do so for about 25 years. We are concerned about the rubber price evolution of course, but are prepared to face the ups and downs. 
With rubber prices very low, we did observe that many economic players – industrial as well as small stakeholders – are starting to convert their rubber fields to crops that are currently experiencing high prices such as pepper or cassava. The price of these commodities could fluctuate as well, and have already started to do so. As a professional and long-term player in the rubber industry, we do not support such decisions and perceive them as errors. 
KT: Because of the drop in the global price, many rubber producing companies and especially households reliant on the business are facing bankruptcy. What will happen if the price does not pick up over the next few years? 
Mr. Boedt: It is difficult to foresee where the market will go exactly in the coming weeks, months and in a more mid-term view of two to three years. Knowing its current level, the probability to see the market rebounding is technically higher than to see it going further down. The market could probably evolve in a range of $1,000 to $1,600 per ton for a while. As a producer, we have no other choice than to work on and control our production costs. As a farmer, you can decide to stop tapping or switch to other crops, but I do not know if this is easy to do. Look at the case in Ivory Coast – so far, production is still growing fast despite the low rubber prices, and this is almost exclusively coming from small stakeholders.
KT: Will Socfin build a processing factory here or just export the raw resin?
Mr. Boedt: With the plantations we have today, which are 7,300 hectares in total, we are definitely planning to build our own factory. We are looking forward to being 100 percent autonomous, being able to produce, transform and export. Nonetheless, because of the current situation of the industry, the investment has been delayed until it improves. 
KT: The government has already decided to bend to a request from the rubber association and has cut the export tax of $50 per ton. Will this help the industry survive?
Mr. Boedt: In tough economic times, it is important that organizations such as the Rubber Association make propositions to help all the industry’s players. The one you mentioned is going in the right direction and we will support any measure that will help the industry to stay strong and help it to be even stronger when prices go up. 
Beyond these considerations, we – as an international player – have to work on several issues that the country is facing and that impact rubber prices. First, as there is no direct use of rubber in the country, we are dependent on international market prices. It also has to be said here that the quality of Cambodian rubber suffers from a poor image worldwide, which, through a drop in value, impacts its price when it comes to exports. Besides, most of the rubber produced in Cambodia is sold through neighbouring countries, with an impact as well on its selling price. 
The long-term implementation of a professional and worldwide recognized group such as Socfin, which is developing while keeping into consideration sustainable social and environmental international standards that major actors of the industry (Michelin, Bridgestone…) recognize, will definitely help to improve that reputation and finally the price. 
More generally, the priority right now for our company is to reduce or at least stabilize our production costs. All decisions made by the government to avoid any increase in these costs will help.
KT: Recently four major rubber-producing countries – Malaysia, Indonesia, Thailand and Vietnam – decided to cut their supply by 15 percent for the next six months. How will this help get the price to rise? 
Mr. Boedt: These four countries have announced that they agreed to cut natural rubber exports over the next six months. This is huge, knowing that the worldwide annual production is slightly above 12 million tons. It has to be highlighted though that they have been announcing the same kind of measures for the last three years in order to stop the price dropping. The problem is that, so far, they have never concretely done it. 
If they do so, it should clearly have a positive impact for all producers, including Cambodia. If they cut supply, prices should react positively. We have to stay careful though as it is not easy to say if it is just an announcement or if they will effectively succeed to apply such an export cut.
KT: Do you expect the global price to return to where it was over many years to more than $4,000 per ton? 
Mr. Boedt: The situation is not that clear yet for 2014-2015, where supply and demand seem more balanced. 
To see the market going up, we will need a lower worldwide stock (of natural rubber, but tires as well where stocks are more complicated to evaluate). What is sure is that if prices remain in the current range, production will slow down, sooner or later, creating probably a shortage issue at around 2020. But until then, many things can happen.

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