◎ Hao Zhangcheng

At the “CHINA RUBBER CONFERENCE 2018” held in Qingdao by China Rubber Industry Association from March 27 to March 30, main persons in charge of ANRPC, IRSG, IISRP, TRA, VRA, CRIA, CSRIA, etc. gave their own answers to these questions.

Have China’s Efforts to Drive Rubber Consumption Weakened?

“Growth in the consumption volume has more to do with China.” This judgment of Salvatore Pinizzotto, Secretary-general of IRSG, had been applicable before 2015. But it was questionable in 2017 and will even remain so in the couple of years to come.

When concluding the economic operating condition of China’s rubber industry in 2017, Deng Yali, Chairman of CRIA, pointed out that the output of tires increased by 7.05% in 2017. Despite increase in production and income, the industry saw no increase in pro t. The realized profits of key companies included in association statistics dropped by 49.56%. In general, tire prices rose in different degrees. But compared to the increase in costs, the rise in prices was still limited, and the pro ts of the industry kept falling. The tire market was facing an increasingly severe situation where competition was getting even ercer.

According to CRIA calculation, the total rubber consumption in China was 10.10 million tons in 2017, which included 5.40 million tons of natural rubber, increasing by 10.20%, and 4.50 million tons of synthetic rubber, increasing by 1.12%.

Li Ying, Secretary-general of CSRIA, concluded the synthetic rubber industry in 2017 with two “drops”. One was the drop in the operating rate of synthetic rubber companies; and the other was the drop in the proportion of synthetic rubber in China’s total rubber consumption, which went down from the peaking 51% in 2016 to 45% and then rebounded to 47% in 2017, six percentage points lower than the global average level. Calculated by an annual total consumption of ten million tons in China, about 600,000 tons of synthetic rubber were saved. She said that this had something to do with the adjustment of product structure as well as industrial transformation and upgrading.

In terms of tire production and sales in 2018, it is widely considered that achieving obvious growth is dif cult. In terms of domestic demand, as the stimulative effect of policies on regulating overrunning and overloading are further reduced, there are advance purchase and overdraft in the heavy truck market. At present, the orders in the terminal market of truck-tractors have already started to drop sharply.

Major export markets in the United States and Europe are troubled by “anti-dumping and anti-subsidy” cases. “A final decision was just made on the year-end retrial of U.S. semi-steel tire case. The amount of exports to the United States has fallen by 30%~40% in recent years. The amount involved in the case of exporting all-steel tires to Europe is 900 million dollars. A nal decision on this case will be made in August. However, European countries are carrying out a registration system toward importers, which severely limits the export of domestic companies despite the exemption from deposit,” said Xu Wenying, Vice-chairman and Secretary-general of CRIA. India is also taking trade remedy measures aimed at Chinese tire products, involving an amount of 120 million dollars.

Xu Wenying said that the Customs has strengthened its management of rubber verification of tire companies. In terms of numbers, the standard for rubber veri cation is lowered and the rejection rate decreased to 1% from 3% in the mean time; in terms of the operating method, the change to fact-based verification means that the verified rubber will decrease accordingly if companies manage to reduce rubber consumption by means of technological progress.

Comprehensively speaking, it is hard for there to be any highlight in the terminal sale of tires in 2018. Plus, the pressure on tire inventory remains. These factors will restrain the demand for natural rubber.

“The direct feeling is that warehouses are teeming with rubber, which indicates that the destocking pressure is huge,” said Hou Fengxia, Secretary-general of CRIA Special Committee of Rubber Materials, after inspecting four bonded warehouses and three companies in Qingdao Free Trade Zone.

Li Sijun, President of CRIA Special Committee of Rubber Materials and Chairman of Yunnan Natural Rubber Industry Group Co., Ltd., has offered a group of statistics showing that putting aside the inventory of tire factories, the conservative quantity of China’s natural rubber inventory is over 1.5 million tons and the number is beyond 3 million in terms of global inventory. “The pressure for social inventory of natural rubber remains high. There is a long way to go in terms of destocking, and there is little hope to be found.”

Xu Jiaoqing, General Manager of www.qinrex.cn, told the reporter that the inventory in Qingdao Free Trade Zone on March 15 was 244,400 tons, about ten thousand tons fewer than earlier this March, among which natural rubber was 122,000 tons, accounting for about one half; on April 15, it decreased to 204,900 tons, which was mainly because the inventory of natural rubber decreased to 90,700 tons.

The latest rubber export data from Dongying City show that the city’s amount of imports in the rst quarter was RMB 660 Million Yuan, decreasing (year on year, same below) by 31%, among which the amount of imports of natural rubber was RMB 460 Million Yuan, decreasing by 31.5%.

“From the long run, whether there is a need for so much rubber remains a question,” said Xu Wenying. He mentioned three reasons for that: Firstly, the growth rate of global tire output is decreasing compared with the previous increase of 7%. But according to the report of a well-known consultancy, the growth rate of global tire output will remain around 3.4% from now to 2025. As technologies are being constantly innovated, the preference for making tires lighter will bring about a trend of slight decrease in rubber consumption; Secondly, the shock from renewable resources upon rubber consumption. The state supports building centers for renewal and treatment of waste tires and used tires. Several major tire companies have all made plans for projects that will put waste tires into comprehensive utilization; Thirdly, the development of electric vehicles renders non-tire rubber products on the decrease.

When answering the question of “Who will replace China to be the region that enjoys late-developing consumption growth?”, the person in charge of IRSG said that the consumption was growing in the United States and Europe, but the growth was limited; producers like Thailand would increase consumption; although consumption was weakening in the Chinese market, the global rubber consumption was mainly driven by China.

When Will Rubber Prices Get Through the Low Level?

“The factor that affects tire companies most is the fluctuation of raw material prices. Tire companies also hope that raw material prices could stabilize,” said Xu Wenying.

The price of natural rubber has been constantly falling since 2011 when it reached an astonishing high of RMB 42,000 Yuan per ton. When will this come to an end? Hou Fengxia said, “In 2017, both rubber agents and carbon black achieved ‘discovery of value’. Only rubber prices didn’t show any trend of recovery.”

From interviews with representatives attending the conference, the reporter found that everyone was pessimistic about rubber demand, the current inventory and prices. The relative consensus is that the slow-down of rubber supply is still ve to six years away.

ANPRC counted the tapping area of natural rubber in 2017 and found that the tapping area of many countries had increased. In addition, it is learned that the output of Laos is also increasing constantly. Its current tapping area is 400,000 hectares. The tapping rate is expected to reach 80% by 2021, when the tapping area is basically about 300,000 hectares.

Li Sijun said, “Calculated by the growing cycle of rubber trees, the supply of natural rubber remains in the cycle of production increase, and the production growth rate is still expected to be optimistic.” There is still room for growth in the tapping area of major producers.

According to Nguyen Ngoc Bich, Secretary-general of ANPRC, several emerging rubber producers such as Myanmar have low production rates and product quality in spite of their large planting areas; Laos and Cambodia are also intensely dependent on the rubber industry in its role of supporting the economy.

According to Liang Aimin, Vice-president of SINOPEC Beijing Research Institute of Chemical Industry, China’s annual capacity of synthetic rubber has reached 5.96 million tons, roughly accounting for 29% of the gross global capacity. “From 2009 to 2017, the capacity has surged by 246% while the operating rate of the entire industry was below 50%. As tire companies make layout overseas, glut will be normal for the synthetic rubber industry in China in the future. The relative surplus of capacity will last for a long period.”

Highlights on the rubber demand side are hard to nd. The pressure of raw material inventory remains high. The supply side remains in a cycle of production increase. With all this taken into account, it is expected that there is a long way to go for rubber prices to get through the low level.

How Is the Effect of Rubber Producing Governments’ Policy of Guaranteeing Minimum Rubber Prices?

Growth in the Tapping Area of Major Rubber Producers in 2017 

In order to raise rubber prices, the Thai government released a series of policies in 2017. For instance, it conducted a strict inspection over foreign rubber tapping labor last June; in July, it nationalized illegal rubber plantation of three million rai; in September, it introduced the 20-Year Natural Rubber Development Strategy; in December, it released united rubber control measures of three countries including Thailand, Malaysia and Indonesia, a plan to cut the export of rubber by 350,000 tons, and the plans to provide low-interests loans, reduce rubber tapping areas, increase domestic consumption, subsidize rubber farmers at home, etc. This February, the Ministry of Agriculture and Cooperatives of Thailand also planned to halt rubber tapping in rubber plantations of three million rai from May to July.

In mid-April, the Natural Rubber Administration of Thailand said that Thailand had overfulfilled the goal of cutting export of 234,800 tons of rubber and the actual number reached 247,000 tons. Also, it believed that the activity plan had just started to take effect judging by the current trend of rubber prices, though there was still a gap between reality and the ideal outcome.

“The stability of rubber prices is the biggest political issue. The government pays a lot of attention to the effect of the implementation of introduced policies. In particular, the general election is going to be held next year. Rubber farmers, who account for 10% of the population, hold a major position. The government focuses on environment and sustainable development. It vigorously protects its tropical rainforest and has stopped deforestation which was meant to make room for rubber trees. The rubber tree planting area has started to decrease,” said Supadetch Ongsakul, Deputy Secretary-general of the Thai Rubber Association.

According to Tran Thi Thuy Hoa, President of VRA Consultancy Committee, as the third largest country, Vietnam has reduced its rubber planting area because of low rubber prices. Farmers start to plant other crops instead or to raise poultry and livestock. They have to make their own living since they get no subsidy from the government.

But most people have got used to this. They think that it is hard for the government’s policy of guaranteeing the minimum rubber prices to have any substantial impact on the supply and demand sides. It quite savors of “The Boy Who Cried Wolf”. “These plans will nd it hard to put into practice. It is quite possible that 95% of small farmers are tapping rubber in secret while taking the subsidy,” said Li Shiqiang, General Manager of Shanghai SRI TRANG Trade Co., Ltd.

“Every time when rubber prices fall into a downturn, major producers will generally introduce some price-maintaining measures. These measures that are meant to guarantee the minimum prices will raise con dence of the market brie y at best. With such repeated old tricks, the market gives increasingly calmer reactions instead,” said Li Sijun.

China’s natural rubber industry is also looking forward to rubber storage by the National Reserve Bureau. The wind of storage blew for a whole year in 2017. But it was shelved temporarily at last due to the organizational reform of the State Council. 

“Continuous output surplus is frustrating. In particular, rubber farmers have to reduce rubber planting areas. Natural rubber might be in short supply ve to six years later, but the problem won’t be severe. We have paid a lot of attention to the rubber planting area. By means of development of new technologies, we will focus on increasing production efficiency to offset the production decrease caused by the drop of rubber planting area,” said the Secretary-general of ANRPC.

Capacity Transference of Manufacturing Companies “Take Me Along to Advance”

During the conference, the reporter learned that the voice for accelerating the transference of raw material capacity to overseas was quite high in terms of whether rubber producing companies or tire producing ones.

“In terms of the supply and prices of raw materials, the traders’ role in making adjustment is very important,” said Chen Tao, Head of Purchasing Department of Sentury Tire Co., Ltd. The purchase prices of Sentury (Thailand) factories tend to be the highest in the countries producing natural rubber, which the company has not been adapted to. “It would only be considered perfect if tire companies could go global and drive raw material companies to go overseas as well.”

Li Ying also hopes that the overseas factories of rubber companies could take raw materials like synthetic rubber overseas as well in order to build a competitive edge in the whole industrial chain of the rubber and tire industry.

“China’s global trade volume of synthetic rubber is disproportionate with its status as a country with major capacity. The import volume accounts for 19% of the capacity, whereas the export volume only accounts for 1.9%. The next step should be making efforts to address the prominent problems that China has in the globalization of synthetic rubber capacity. Of course the rst thing to do is to become internally strong to strive for preferable policies.” According to Li Ying, since 2012, synthetic rubber companies have been doing the following things: Firstly, they have conducted activities for saving energy, reducing costs, improving quality and enhancing ef ciency; secondly, they have increased effective and high-end supply to tire and rubber product companies, the goal of which is that the proportion of supply of environment-protecting products reaches 75% to meet downstream demands; thirdly, they have conducted R&D work on customized products for particular tire companies.

“24 of the 65 countries along the ‘Belt and Road’ route are synthetic rubber consumers. The consumption in 2017 was 4.27 million tons, accounting for 28% of the world’s total volume. With China added to it, they make up 59% of the world’s total consumption volume,” said Liang Aimin, who had the same thought. According to him, it would be a general trend to make domestic products highend oriented and to transfer capacity overseas. Being driven by innovation, industry-university-research collaboration as well as upstream and downstream integration would be the essential requirements for products to be shifted to the mid to high-end. High-performance SSBR, NdBR, HIIR would accelerate the pace of application.

According to Liang Aimin, among the largest ten synthetic rubber producers worldwide, only two companies Kumho Petrochemical of South Korea and Sibur of Russia, have a full industrial chain featuring upstream and downstream integration; Goodyear Company has downstream tire production but no upstream raw materials; Sinopec has upstream raw materials but no close alliance with downstream tire companies. “Cooperation by alliance is an inevitable choice to maintain the relation between synthetic rubber producers and tire producers. As the world’s largest synthetic rubber producer and consumer, China has a full industrial chain whose sound development concerns the healthy development of both upstream and downstream companies.”

Liang Aimin said, “After the super-department reform is nished in the rst half year, clients will be served with production-sale-research integrated products instead of having to make a detour as they used to. From the second half year, the consciousness of serving clients will be increasingly stronger, the efficiency will be increasingly higher and the effect will be increasingly better.”