A Macro view

China Factor:

The emergence of China as a significant consumer and at the same time as a potential manufacturer of rubber products is an unshakeable fact. China has overtaken the US and consumes more than 1 million tons of rubber and produces more than 600,000 tons of NR. Almost all major rubber companies are relocating in China to serve the world's largest market. Sri Lanka is yet to integrate with this most promising market.

India to Follow:

Not to be neglected is the potential of India as the next possible emerging market and source of competition as well. Efforts should not be spared in determining the needs of these emerging markets as far as rubber and rubber products are concerned, and appropriate trade and business arrangements need to be initiated with these countries.

IRCo.

The International Rubber Consortium Limited (IRCo) is a limited liability company setup recently by Thailand, Indonesia and Malaysia who jointly account for 79% world NR production. IRCo discuss the issues of remunerative price for rubber, price of NR gloves, export of rubber wood and latex supply. This Tripartite cooperation seems to be working in pushing up the NR rubber price to more that USD 1.20. India, Vietnam and Sri Lanka is expected to join this company in some form.

Shifting to East:

The trend is to shift manufacturing operations to Asia by major manufacturing companies. Two reasons are: coming closer to the markets and becoming cost competitive. However, this is for bulkier medium technology products. Sophisticated high value added products that require continuous innovation based on R&D will be made in the West. Resource and Energy efficient, environmentally friendly manufacturing will be the West's competitive advantage.

Industry Outlook

Upstream

Biotechnology: Looking to the future, strategic research is on-going in several areas to value-add to rubber growing. The rubber tree is a versatile factory of diverse products. Whereas rubber and rubberwood are of course familiar harvests of the rubber tree, Hevea brasiliensis has yet more to offer. Somewhat more obscure, but of great economic potential are exciting products such as Vitamin E from the latex and an anti-cancer extract from the rubber tree. With genetic engineering, the product range from the rubber tree factory can even be extended to foreign proteins of commercial value, such as pharmaceutical proteins. It is expected that these products would be commercialized successfully in the future.

Experts project an impending shortage of rubberwood supply. One way to resolve this problem is to establish rubber forest plantations. In Malaysia, rubberwood furniture export has exceeded RM 5 billion (Rs. 130 billion), approaching RM 18 billion by 2020. The Malaysian government has responded to the call of the private sector to provide incentives, including soft loans for the establishment of rubber forest plantation. This is in addition to the earlier fiscal incentives of pioneer status and investment tax allowances. Sri Lanka continues to make brush handles and low value MDF from rubber wood.

Downstream

The Global Automotive Industry: Current and Future Perspectives

In today's borderless world, the global automotive industry faces many serious challenges in terms of financial, geographical and regulatory requirements. In order to remain profitable it is inevitable that only some companies will survive despite over 50 million cars being produced every year. With typical profit of 2-3% and average plant utilization of 70%, the industry is in dire need of cost reduction and restructuring to cope with manufacturing diversity and technical innovation.

The industry also faces regulatory challenges to meet emissions target, end-of-life vehicle disposal and stringent safety requirements. The ever better-informed and more demanding customers are increasingly putting pressure on the industry to compete with inevitable further reduction in profitability.

Against a backdrop of the competitive market and myriad challenges, it is important that the component manufacturers be judicious in selecting car manufacturers to ensure future success.

Products and Organizational Requirements for the Global Markets – Making a Material and Quality Difference.

Companies makes use of six sigma methodology and lean manufacturing approaches with the key aims to increase customer satisfaction, reduce cost, improve profit margins and improve its competitive position.

The rigorous application of six sigma helps to produce significant bottom-line results, provides better products and services for customers, develops and empowers employees, and sustains gains which have been achieved.

 Lean manufacturing is characterized by a continuous flow of work with minimum inventories, small batch production capability synchronized to shipping schedules, defect prevention by building quality into work processes, implantation of real time quality feed back procedures, production planning that is driven by customer demand, team-based multi-skilled operators empowered to make decisions which can improve work operations. The message is clear that ZERO DEFECT is what manufacturers should strive for, and what customers expect to receive.

USA Market and Regulations

Future Trends in Latex Products

NR latex remains the main raw material used in latex products, capturing a share of 63% compared to PVC (15%) and nitrile (7.5%). Despite the latex protein allergy concern, NR latex will likely continue to be prominently viable, but measures need to be taken to ensure low protein content. Technological advances including low protein NR lattices and improved products will continue to push the NR latex products to greater height. Medical gloves remain the main highlight product, and the most notable issue is the changing trend from powdered to low protein powder-free gloves both in the US and Europe. Regulatory restrictions in these countries remain a great challenge to be addressed. Synthetic products are foreseen to match those of NR latex, and improve their eventual penetration into the market share. Some niche attributes of NR latex will continue to be the pillar of strength for this material, among which are, its green image, sustainability, as a renewable resource, and its biodegradability. However, allergy issues, improved technologies of alternatives and litigation impact will prove to be a strong challenge in future.

The synthetic products are obviously undermined by the health hazards of their monomers, and by-products from incineration, and in the case of vinyl products, the carcinogenic plasticizer. Barrier integrity of NRL product is the primary advocate for its strength in medical devices, a characteristic that is yet to be equally matched by their synthetic counterparts.

Realizing the Potential for Fine Grind in New Tires
Each day you hear of new technical advances in the tire and automotive industry. In 1999, major tire manufacturers like Michelin, Continental and Goodyear all announced programs or breakthroughs for using recycled rubber in new tires. Keeping up with these developments is a formidable challenge for ground rubber producers.

Rubberized Asphalt
This is a market that is truly "coming of age." As one of the oldest markets for ground tire rubber, asphalt rubber is today moving beyond the flagship states - Arizona and California - which launched its use more than 20 years ago.

Using Recycled Rubber in Automotive Parts
The use of recycled materials in vehicle design and automotive parts manufacturing is increasing. It is important to learn firsthand why car manufacturers are demanding recycled content from parts suppliers and what this means for recycled rubber markets worldwide.

In the US, more state officials as well as highway and construction engineers are specifying tire chips in projects than ever before. The key to continuing this growth is education. Learn how to value this material for its engineering, performance and cost-value by working with civil engineers.

Synthetic Rubber:

The Goodyear Tire & Rubber Company is looking to "tap" into several new proprietary synthetic rubber products it has developed that could help the company reduce its natural rubber dependency by as much as 15 percent over the next few years. Recent natural rubber price volatility, that has shown no signs of subsiding soon, created a sense of urgency for our research and development people."

Among all of the world's tire and rubber product producers, Goodyear has long been considered a leader in synthetic rubber development capability. The last two years have seen world natural rubber prices climb steadily as demand has increased. Most industry observers expect the prices to continue upward through 2004.

"After just going through a very difficult economic period as an industry, we felt at Goodyear that we could ill afford to sit back and hope that relief in the form of lower natural rubber prices would come along," said Goodyear's Gary A. Miller, vice president and chief procurement officer. "That flexibility not only will help cushion us against future natural rubber price volatility, but also provides us with a competitive advantage," Miller said.

Opportunity for Innovation: Tires and Sensors

Sensors for continuously monitoring vehicle tire pressure and temperature have keen opportunities over the near-term in both OEM an after market applications, driven by vital driver safety concerns, as well as by fuel economy and environmental issues. To optimally exploit the market for sensors in automotive tire pressure monitoring systems (TPMS), sensor manufacturers should ensure that they will be capable of efficiently producing TPMS sensors in high volumes with high yields and decent margins.

Opportunities in the U.S. for sensors that provide real-time information about vehicle tire pressure and temperature have been spurred by the recall of 6.5 million Firestone tires in August. The tires have been linked to 119 deaths in the U.S., involving rollover accidents mainly on Ford Explorer.

Sri Lanka

Rubber Supply and Demand

There is a grave concern on the current and future supply of rubber for the local industry. The estimated production of rubber for Sri Lanka in the region of 90,000 – 100,000 tonnes per year, of which latex comprises around 25,000 tonnes. However, around 10,000 tonnes of rubber are imported to make up for the shortfall of supply required by the rubber products industry. Importing from India seems to be possible at present but the situation may change very soon if the new government changes its policy.

April 28, 2004 Wednesday  12:58 PM Eastern Time 

India's tyre industry Tuesday demanded the immediate withdrawal of a rubber export subsidy scheme after a 75 per cent increase in natural rubber (NR) prices over the last three years. The industry said prices have surged to Rs 52,350 (US$1,185.60) a tonne this year from Rs 30,360 a tonne in 2000-01.

* It blamed the rise mainly on the subsidy for exports of natural rubber, which has led to a major depletion of stocks.

* Chairman, Automotive Tyre Manufacturers Association, Raghupati Singhania, said stocks had fallen to less than 60 days of consumption of the rubber consuming sector and were expected to decline further in the coming months.

Let the Producers Grow:

I t is imperative that local NR producers be accorded remunerative returns to convince them to remain and continue supplying the much-needed strategic raw materials for the downstream manufacturing sector. To ignore this would accelerate their switch to more lucrative alternative crops. In this context, the adoption of innovative technology should be intensified to improve crop productivity. Moneragala Rubber Program is conceptualized to meet these challenges.

LANKAPRENE PROGRAM

Objectives

The SLRC has undertaken to promote, as a key strategic initiative, “Lankaprene”, a new derivative of Latex Crepe Rubber (LCR) as a non-commodity type modern industrial raw material to targeted consumers and applications, as against LCR, which is traded in global markets as a commodity and a basic agricultural raw material. The strategy is to re-position LCR as a versatile alternative polymer material in niche markets using its intrinsic attributes and strengths. Lankaprene will be sold on a Technical Data Sheet and it is the purest form on NR available. Lightest color and lowest protein content are other advantages.

Success of this strategy would depend on having direct and close contacts with targeted industrial consumers of natural rubber. To test the marketability of Lankaprene in the US, a study tour was undertaken by a team of competent rubber industry professionals facilitated by TCI and supported by The Rubber Research Institute of Sri Lanka and the Sri Lanka Export Development Board. They met with US manufacturers, testing laboratories, relevant universities and polymer trade associations.

The receptivity of and feedback from the targeted US based industrial consumers reinforced the viability of executing the proposed strategy for Lankaprene. Persuading US consumers to change their procurement strategies would be no easy task. The results of the visit provided new ideas, possible applications, and interest in production size quantities indicating a focussed approach to implementation of this strategy.

The Lankaprene program has been prepared on the basis of a business model, which requires the creation and operation of three distinct entities as follows.

A certification mark programme for which a certification company limited by guarantee and not for profit is recommended, as the appropriate vehicle vested with responsibility to establish and manage it.

A network of LCR factories equipped to produce specialized crepe rubber to be certified as Lankaprene, for which purpose a number of regional plantation companies have expressed their commitment and have identified individual factories for Lankaprene production.

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