Rubber industry sees no silver lining on horizon

Sri Lanka’s rubber industry, which faced one of the toughest years, last year, due to lower global commodity prices, doesn’t appear to be recovering, with a few companies discontinuing their rubber production.

According to the Central Bank data, Sri Lanka’s raw rubber production in 2016 fell 10.72 percent year-on-year (YOY) to 79.1 million kilogrammes.

“(It’s) the lowest production volume reported in the past 50 years. This was mainly due to the reduction of the extent under tapping and the number of tapping days in response to the lower prices mainly in the smallholder sector,” Kegalle Plantations PLC Chairman Dr. Sena Yaddehige said in his annual review.

Some smallholders have also been cutting down rubber trees and selling them for timber and firewood in times of trouble. Since the commodity prices in the global market are linked to the global crude oil prices, the global crude price free fall in 2015 resulted in a major drop in the rubber prices.

Further, since synthetic rubber is produced from crude oil, the substitute has become cheaper, although some processed rubber products require a blend of both synthetic and natural rubber.

Although the commodity prices somewhat recovered in the recent months along with the crude oil prices, there is currently a glut in the natural rubber market.

Following the fall in rubber prices due to a supply glut in major producers in Southeast Asia, the Sri Lankan government for a majority of 2015 set a price ceiling, with the highest grade RSS 1 price set at Rs.350, although the effectiveness of this programme is debatable.

The differences in the prices were borne by the taxpayers, although the imports ranged as low as Rs.220 during the period.