Rubber hits price stability as exporters cast net wider

Illustrative image. Photo: VNA

Vietnam Rubber Group (VRG) in the first nine months of the year achieved 84 per cent of its targeted profit after tax in 2021, in stark contrast to the previous low-profit forecast. The consolidated financial statements for the third quarter of 2021 were released by VRG in the context that Vietnam’s rubber exports to the Chinese market continued to decline.

Vietnamese manufacturers have found new life when selling rubber at high prices, helping to alleviate concerns about rising freight costs and unfavourable weather. The Ministry of Industry and Trade (MoIT) estimated that the average rubber export price in September reached $1,646 per tonne, up 22.7 per cent over the same period in 2020. In the first nine months of the year, the average export price reach about $1,669 per tonne, up 29 per cent over the same period last year.

The price of natural rubber escalated mainly due to the relatively fast recovery of the Chinese economy, the acceleration of global vaccinations, and the impact of the US government’s $1.9-trillion economic stimulus package amid shrinking European supply.

Profits of many Vietnamese manufacturers increased sharply, thanks to the upward trend in prices since the beginning of 2021, but against the background of lower set targets.

Huynh Van Bao, general director of VGR, at the end of June had to submit a plan to his shareholders, in which “the profit after tax was reduced by 11 per cent compared to 2020 due to concerns about the pandemic on rubber latex exploitation”. To make the plan more convincing, Bao decided to add an increased level of inventories from the group’s financial statements for the first quarter.

Vietnam is the third-largest exporter of natural rubber in the world. Last year, the country contributed 1.75 million tonnes to the global supply. However, China’s rubber consumption – a market that accounts for over 70 per cent of Vietnam’s total rubber exports – has slowed down significantly as the country’s auto industry faced shortages of semiconductors and a power supply crisis. Just within the third quarter of the year, the volume of rubber exported to the Chinese market decreased by 21.1 per cent – equivalent to a decrease of nearly 110,000 tonnes.

Manufacturers are now concerned that rubber exports may continue to fall in the fourth quarter, as China’s industrial output is still dragged down to a low level. The pandemic has pushed the rubber industry into a difficult position. The Chinese government is still determined to fight the virus even though border closures and unexpected blockades are continuously disrupting the economic activities of the country.

“There are too many factors to consider,” commented Vo Hoang An, general secretary of the Vietnam Rubber Association, referring to skyrocketing raw material prices, the shortages of empty containers, and high freight rates.

Domestically, investment costs for rubber plantations are high, especially because these are not exempt from land rent, which will make new projects more difficult for businesses.

However, there might be light at the end of the tunnel. The Agency of Foreign Trade under the MoIT said that China is expected to import 1.7 million tonnes until December to make up for the shortfall of the previous period. A similar increase is expected from January to April 2022.

Manufacturers hope that rubber prices will not cool down so soon, at least until the end of the first quarter of 2022. But since rubber farms stop growing latex in the last months of the year, this presents a condition for rubber prices to increase.

In a cautious forecast, the agency found that the global rubber prices will likely fluctuate with low amplitude in the short term, but the prices may remain at the current level in the long term, with little possibility of increase or decrease. Nevertheless, factors such as the pandemic, supply chains, and the resilience of the world economy will ultimately determine the long-term trend of rubber prices.

The MoIT’s forecast is encouraged by data from the World Bank, which stated that the average price of rubber for the whole year of 2021 would be around $2,250 per tonne, before gradually recovering to about $2,260-2,280 per tonne in 2022-2030 and reaching about $2,300 in 2035.

Assoc. Prof. Dr. Pham Tat Thang from the Institute for Industry Policy and Strategy under the MoIT, found that the price of Vietnamese rubber sold to China increased, overcoming the country’s technical barriers and proving to the world that Vietnam can be counted on as a sustainable rubber supply.

Thang also warned that the volume of rubber exported to China is large, and thus the industry’s turnover depends heavily on this market. “Once the Chinese economy’s demand declines, it will be difficult for domestic manufacturers,” he said. “Some manufacturers are looking for alternative markets and, at the same time, changing their production structure to meet the requirements of those new markets.”

According to the General Department of Vietnam Customs, Vietnam’s rubber exports to China in the third quarter were estimated at over 366,110 tonnes, accounting for 99.3 per cent of Vietnam’s total rubber exports, and worth $603.45 million, up 8 per cent on-year.