Natural rubber must target China market: Analyst

Zakki P. Hakim The Jakarta Post/Jakarta

Indonesia should expand its exports more to East Asia where demand for natural rubber is growing far faster than the country's traditional market of North America and Europe, analyst and industry players say.

East Asia's demand for natural rubber grows by 5 percent annually and 10 percent in China alone, whereas demand in Indonesia's main market, the United States, expands by a mere 2 percent each year, commodity analyst Harry Tanugraha said.

East Asia's demand for natural rubber has been rapidly growing because many automotive producers have been shifting their production bases from North America and Europe to countries like China, Japan and South Korea, he said.

The automotive industry absorb 76 percent of the world's rubber production for tires.

Harry said that the national natural rubber producers must pay attention to matters like freight cost, the economic condition of export destination countries and most importantly the development of tire technology in order to compete with producers from other countries.

It takes 21 to 30 days to ship the commodity to North America or Europe, while delivering to East Asian countries like China would only take seven days, he said.

"If Indonesia fails to focus on those issues it could face the consequence of losing to Malaysia, Thailand and Vietnam in holding the East Asia market, especially China," he said in a statement received by The Jakarta Post.

He added that China expected to produce 10 million vehicles and 98 million tires 15 years from now.

Separately, the Association of Indonesian Rubber Producers (Gapkindo) executive director Soeharto Honggokusumo confirmed Harry's opinion, saying in 2005 up to 50 percent of the global rubber demand would come from Asia Pacific countries.

"We are moving to those markets," he told the Post.

Soeharto said that local exporters would seek to maintain their traditional market while expanding to the East Asia market.

He said that Indonesia's natural rubber exports to China had expanded rapidly to an estimated 160,000 tons this year from last year's 106,000 tons. In 2002, the exports stood at only 46,000 tons.

He went on that the association would meet with Minister of Trade Mari E. Pangestu on Tuesday on the future of the country's rubber industry, especially the prospect of further penetrating the Chinese market.

Indonesia is the second largest natural rubber producer in the world after Thailand.

Indonesia produced 1.79 million tons in 2003, 91 percent of which was exported. Of the total exports, 55 percent was sent to North America, 17 percent to Europe, 20 percent to East Asia and the rest to other countries.

The association has estimated that national production would stand at 1.91 million tons this year with an average price of 120.64 U.S. cents per kilogram compared to last year's 100.41 cents.

In 2004, natural rubber enjoyed a near 21 percent price increase from last year's average price, as some consumers turned from synthetic rubber because the price of its main ingredient -- crude oil -- increased significantly this year.