Tyre Association

ANRPC NEWS

A newsletter of the ASSOCIATION OF NATURAL RUBBER PRODUCING COUNTRIES 7th Floor, Bangunan Getah Asli (Menara), 148, Jalan Ampang, 50450 Kuala Lumpur, Malaysia Tel : 603-21611900. Fax : 603-21613014. E-mail: [email protected] Website : www.anrpc.org

Volume 21 No. 2

FROM THE SECRETARY-GENERAL’S DESK There have been major and significant political and economic developments in the recent past, which can be generally referred to as economic liberalisation and globalisation. Such changes had critical implications on all spheres of economic activities including the functioning of commodity based intergovernmental organisations. Most of the commodity based intergovernmental producer-consumer forums collapsed or were relegated to the status of monitoring agencies. In the case of NR, the producer-consumer forum, International Natural Rubber Organisation (INRO) collapsed in late 1990s. The ANRPC, which is a producers’ forum established in 1970, continues its activities focusing on promoting the development of the NR industry and bringing about remunerative and stable prices for NR through co-ordination in production and marketing. NR price continues to be a sensitive issue in most of the producing countries because of the overwhelming dominance of small producers and the economic and social consequences involved. From the turn of 2002 the rubber prices started moving northwards and the prices are still in the comfortable zone. The Association is very much concerned of the welfare of the smallholders who shoulder this industry. Hence deliberations on measures and strategies to enhance the net returns of the smallholders through cost minimising and income augmenting cultural practices take a centre stage in ANRPC meetings. Measures to increase the absolute and relative consumption of NR is also given due importance. This would be my last message, as I will be completing my term in May 2007. During my term the Executive Committee met five times in Port Moresby, Papua New Guinea in October 2004; Kuala Lumpur, Malaysia in February 2005, Chiang Mai, Thailand in April 2005; Penang, Malaysia in February 2006 and Colombo, Sri Lanka in December. The Executive Committee

December 2006

meeting in Chiang Mai was followed by a Special Session of the ANRPC Assembly at Ministerial level which was opened by the then Prime Minister of Thailand. The Assembly Sessions also were held along with the Executive Committee meetings (except in February 2005). The Co-ordinating Committee on Production and Marketing Strategies (CCPMS) was convened twice in August 2005 in Bali, Indonesia and Colombo, Sri Lanka in December 2006. The Committee on NR Statistics (CNRS) met twice in Kuala Lumpur in September 2005 and in Colombo, Sri Lanka in December 2006. Further the Working Groups and Expert Groups met on several occasions to deliberate on and oversee specific activities. The Ninth ANRPC Seminar on Progress and Development of Rubber Smallholders was held in Kochi, India in November 2005. A review of the Association was undertaken by a specially constituted Expert Group with a view to make the organisation leaner and more responsive to the current needs of the member governments as well as to improve its efficiency and effectiveness under the current global environment. The recommendations of the Expert

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ANRPC Meetings/Conferences 2006

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News from ANRPC Countries

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Rubber Industry News

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Economic News

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NR Market Review

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WTO Corner

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Other Regional Agreements

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Natural Rubber Industry in Papua New Guinea

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Country Profile in Brief: Indonesia

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Exchange Rate

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Editors: Phillip T. Pondikou – Secretary-General, Arumugam – Deputy Secretary-General and Toms Joseph – Economist

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Group were adopted by the Executive Committee in December 2006 and implemented. The CNRS and CCPMS were renamed as Information and Statistics Committee (ISC) and Industry Matters Committee (IMC) to reflect the broader terms of reference and functions defined. In the emerging context, the Association has an important role as a forum for exchange and dissemination of information. Hence the restriction on the circulation of the ANRPC Quarterly NR Statistical Bulletin was lifted in 2004. The ANRPC Newsletter was improved by expanding the content of the regular items and adding new items such as WTO corner, other regional agreements, NR market review and special articles on relevant topics. Another important development was the launching of the ANRPC website in 2005. All the ANRPC publications, except the confidential documents, are available in the public domain of the site. The ANRPC Secretariat had a hectic schedule during the last three years. I would like to place on record the efficient services rendered by my colleagues, Mr. Arumugam, Deputy Secretary-General and Mr Toms Joseph, Economist at the Secretariat during my term. The Association and the industry have been immensely benefited by their service. I also would like to place on record my deep gratitude to the member governments and other related organisations for their valuable cooperation and continuous support extended to the Association during my term. I wish the Association a flourishing future and an accomplishing term for the incoming SecretaryGeneral, Ms Suchada Varaphorn from Thailand.

ANRPC MEETINGS/CONFERENCES 2007 1. Fourth Meeting of the Working Group on NR Protein Allergy is scheduled to be held on May 3 rd and 4 th, at the Secretariat, Kuala Lumpur, Malaysia. 2. Fifth Meeting of the Expert Group on Promotion of NR as an Environment-friendly Raw Material and a Renewable Resource, is scheduled to be held at the Secretariat, Kuala Lumpur, Malaysia. 3. First Meeting of Information and Statistics Committee is scheduled to be held in Malaysia. 4. First Meeting of Industry Matters Committee is scheduled to be held in Malaysia.

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5. Thirty-third Meeting of the ANRPC Executive Committee is scheduled to be held in Malaysia. 6. Thirtieth Session of the ANRPC Assembly is scheduled to be held in Malaysia.

NEWS FROM ANRPC COUNTRIES India Special Fund for Plantations Having successfully launched a special purpose fund for tea plantations, the Commerce Ministry has proposed to float such funds for coffee, pepper and rubber plantations in order to boost production. The Ministry would provide Rs 1,500 crores for these three sectors. The respective Commodity Boards are working on the structure of the fund. Source: Indian/International Rubber Journal, July-August 2006 Ageing Rubber Trees Cause Concern The Rubber Board Chairman, Sajen Peter said the potential for increasing NR production had been limited due to the continued exploitation of the ageing rubber trees. He was presenting the latest trends and outlook for NR at the 113 th Annual Conference of the United Planters’ Association of Southern India (UPASI). Unscientific and excessive harvesting by a section of small growers is likely to take its toll on the NR production potential in the coming years. High price realisation has also made the growers complacent about replanting of aged trees, leading to lower yields. Source: Rubber India, November 2006 Tripura’s Potential in Rubber Cultivation According to the Union Minister of State for Commerce, Jairam Ramesh, Tripura is the country’s next frontier for the rubber industry. Among the states Tripura is the second largest NR producer after Kerala. The Rubber Board has identified 100,000 hectares as the potential area for rubber in Tripura, of which roughly 31 per cent has come under cultivation. Source: Press Release, Ministry of Commerce, Government of India, 16th December 2006

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ISI a Must for Tyres The government has passed a ruling making it mandatory for all automobile tyres in the replacement and original equipment markets to bear the ISI mark. Several premium and imported cars have tyres sourced from international markets which do not bear an ISI certification. Introduction of this norm would mean that these cars will now have to source ISI – marked tyres or run the risk of being taken off the roads. The Society of Indian Automobile Manufacturers (SIAM) is seeking a review of the norm by the government. Source: India Business, 9th August 2006 Apollo signs MoU with Tamil Nadu The Apollo Tyres signed a Memorandum of Understanding with the Tamil Nadu government to acquire 135 acres of land in the Oragadam Industrial Park for the construction of a radial tyre facility. The company will be investing Rs 300 crores initially and the final investment will be between Rs 450 to 520 crores. The radial technology currently being developed by the company using the internal R&D expertise would be used. The company currently has three tyre and one tube plants. The Tamil Nadu unit will be used exclusively for manufacturing high quality truck, bus and light truck radial tyres along with high and ultra-high performance passenger car radial tyres for the domestic and export markets. The company expects to complete the Tamil Nadu project within a time span of 24 to 36 months. Source: Press Release, Apollo Tyres Ltd., August 2006 JK in Formula Tyres As part of its ongoing efforts to promote motor sports in the country, J K Industries launched ‘formula tyres’ in August 2006. The first set of JK formula tyres had been fitted to three different types of formula cars for which engines were supplied by Maruti Udyog, General Motors and Hyundai Motors. The three formula machines are called Formula-LGB-Swift, Formula-RolonChevrolet and Formula-LGB-Hyundai. Source: Rubber India, September 2006 Yokohama Entering India Yokohama Rubber Co. would establish a wholly

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owned subsidiary named Yokohama India in New Delhi in January 2007. Yokohama India is to serve as a tyre sales and marketing company. In future the company may have a local headquarters should the tyre maker opt to add tyre manufacturing or marketing of automotive hoses and sealants. Yokohama currently markets passenger car tyres in the country through its Singaporean tyre distributor. Source: www.tirereview.com 5th October 2006 Anti-Dumping Duty on Tyres The government imposed anti-dumping duty on import of cross-ply truck and bus tyres and tubes from China and Thailand. The domestic tyre majors, Apollo and Ceat, had filed complaints before the designated authority in the Ministry of Commerce. Source: www.indiabusinessweek.com 13 th October 2006 Goodyear Plans New Range Goodyear India, a subsidiary of the US tyre giant Goodyear Tyre & Rubber Co, is planning to roll out its new range of ‘Excellency’ tyres for the premium car segment. It will initially import the tyres from China. Depending upon the demand in the domestic market it might consider manufacturing the product at its Indian unit in Aurangabad. The premium tyres are being launched in response to the soaring demand for luxury cars in the country. The series will be available for most luxury car models including the Hyundai Sonata, Honda Accord, Honda Civic, Skoda Octavia, Mercedes E, C and S Classes and Audi A4, A6 and TT, among others, and will come in 10 variants. Source: Indian/International Rubber Journal, December 2006 HLL Diversifies Hindustan Latex Ltd. (HLL), a leading manufacturer of family planning and healthcare products, is branching out to new business. This is a part of the company’s plan to achieve a turnover of Rs 10,000 million by 2010. The diversification plans also include vibrating condom and three-in-one-condom (dotted, ribbed and foam-fitted). The company is also planning to market its premier male condom brand ‘Moods’ in the US market. According to company sources, a draft agreement had already been

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signed with WalMart for retailing the ‘Moods’ brand through the latter’s outlets. Source:

Rubber Asia, September-October 2006

Association (IRMRA) and Underwriters Laboratory (UL) of the US for the testing of rubber and polymer products. This MoU with the leader in product-safety testing and certification will be another form of international recognition for IRMRA.

Car Output to Double by 2010 By 2010, automobile companies in the country will produce more than double the 3 million units they currently produce and invest almost Rs 12,000 crores. While a large amount will be exported, the bulk of the output will be sold in the domestic market. Industry experts estimate demand to grow at a double-digit rate for the next 3-4 years. Maruti’s plant, located in Gurgaon, is running at full capacity and a second plant is expected to start production by the end of 2006. A separate facility, a proposed third plant for Maruti is also under deliberation, based on the group’s target of a million vehicles by 2010. The world’s biggest automaker, General Motors, recently decided to invest over Rs 1,250 crores in the western state of Maharashtra to double its domestic capacity. Meanwhile the tyre major Tata Motors has embarked on an ambitious and much-awaited project of making a small car which costs about Rs 100,000. Another collaboration between Tata Motors and Italian major Fiat involves a joint production facility of 100,000 cars at Fiat’s unit in Ranjangaon. Source: Indian/International Rubber Journal, September-October 2006 Forced to Buy Heavier Trucks Following the recent ruling by the Supreme Court banning the overloading of trucks, operators are being compelled to buy heavier trucks to carry consignments. Over the past six months, sales of huge tractor-trailers capable of hauling a gross weight of 35 tonnes including the weight of the trucks (called 35 tonners) have surged by 10 times. Sales of tractors-trailer trucks sold by the three big manufacturers – Tata Motors, Ashok Leyland and Volvo increased to 7168 units in the last six months from 704 units in the corresponding period in 2005. The hottest selling models are the 40 tonners launched recently by Tata Motors and Ashok Leyland. Source: Indian/International Rubber Journal, September-October 2006 IRMRA-UL MoU A Memorandum of Understanding was signed between Indian Rubber Manufacturers Research

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Source: Indian/International Rubber Journal, December 2006

Indonesia Cheap Loans for Rubber Plantations The government is in the process of drawing up a plan to offer subsidised loans for rubber, oil palm and cocoa plantations. The objective is to encourage new investment and boost output. A consortium of banks, led by Bank Rakyat Indonesia (BRI), would provide loans at a fixed interest rate of 10 per cent. The difference between the fixed rate and the prevailing market rate would be covered by a government subsidy. The government might allocate up to Rp10 trillion (US$1.08 billion) to subsidise increased lending to the plantation sector. Source: The Jakarta Post, 15th July 2006 Lower Rubber Output Rubber output could be 50,000 tonnes lower than the previously targeted 2.2 million tonnes in 2006 due to unfavourable weather conditions according to the Indonesian Rubber Association (GAPKINDO). Its Vice-Chairman Asril Sutan Amir said the lower-than-expected production would mainly be the result of a forecast of “El Nino”. Heavy rains have already caused flooding in several plantations in North Sumatra, he said. The unfavourable weather condition, which may continue until February 2007 coupled with possible disruptions in the production cycle due to the felling of rubber trees for timber could further reduce output to 2.1 million tonnes in 2007. Source: The Jakarta Post, 14th November 2006 Gajah Tunggal’s New Plants The tyre major, PT Gajah Tunggal Tbk is spending US$ 170 million to establish two new manufacturing facilities and increase its output to meet growing demand. The company plans to set up a radial tyre plant and a motorcycle tyre plant which are expected to be in operation by 2009. With the addition of production from the two new factories, the company expects its radial

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tyre output to increase to 45,000 units per day from the current 30,000 units a day and motorcycle tyre output to reach 105,000 units a day from the current 37,000 units per day.

device that will prevent rain from diluting latex. ‘Rain-Bust’ consists of a plastic sheet, a wire and a gutter band which can be removed after use. The ‘raincoat’ has to be placed over the tapping panel as protection against the rain.

Source: Indian/International Rubber Journal, September 2006

Source: New Straits Times, 5th August 2006

Tyre Exports to Reach $600m

Reclaimed Rubber

According to the Indonesian Association of Tyre Producers (APBI), tyre exports from the country will reach about US$ 600 million in 2006, as compared to US$ 520 million last year. In 2005 total tyre output had reached 57 million units, of which 60 per cent had been exported. Falling auto sales in the country led to a decline in tyre demand domestically. However tyre exports continued to rise in the past two years.

A Taiwanese company in Selangor transforms 10,000 tonnes of rubber discards into reclaimed rubber annually. It reclaims rubber from rubber tread, tyre inner tubes, industrial rubber waste etc. The reclaimed rubber is cheaper than NR and is used in manufacturing tyres, inner tubes, conveyor belts, automotive and engineering rubber parts etc. Source: Rubber India, October 2006

Source: Indian/International Rubber Journal, September 2006 Englotechs Expands

Malaysia RISDA to Boost Rubber Replanting The Rubber Industry Smallholders Development Authority (RISDA) will use 80 per cent of the RM1.4 billion set aside for it under the 9 th Malaysian Plan (9MP) to replant rubber trees and oil palm. The agency plans to replant 20,000 ha of land a year. It funds smallholders with RM 7,000 per ha for replanting rubber trees. The remaining 20 per cent allocation will be used to fund training and other research and development programmes. There are about 253,000 rubber smallholders on 800,000 ha of land managed by RISDA. RISDA wants to boost the income per capita of rubber smallholders to more than RM 2,000 a month by 2010. Source: New Straits Times, 10th August 2006 Calls on IRCo to Stabilize Price Datuk Peter Chin Fah Kui, Plantation Industries and Commodities Minister said that there was a need to stabilise the price of NR. IRCo should find out the reasons behind the rubber price fluctuations and provide proper strategies and recommendations to counter the situation. Source: Rubber India, October 2006 Rain-Coat The Rubber Industry Smallholders Development Authority (RISDA) has come up with a RM4 5

Englotechs Holdings Bhd is investing RM30 million to expand production of a new range of supported gloves at its plant in Kulim. This investment in Padang Meha Industrial Estate would add another seven production lines. The new range included non-toxic polymer gloves, cut-resistant gloves and hobby gloves. The nontoxic polymer gloves, made from water-based polyurethane chemicals, are used in electronic and automotive industries. The cut-resistant gloves, made from a special type of yarn called dyneema, are used in slaughter houses and glass industries. The hobby gloves are used mainly in gardening. They give a better grip, compared to the conventional leather hobby gloves. Source: The Star, 11th July 2006 IRCB into Nitrile Gloves Integrated Rubber Corp Bhd (IRCB) plans to diversify into the production of nitrile gloves at its new plant in Taiping, Perak. The new plant would have 12 production lines, of which, half had been installed and the balance would be ready by November 2006. Source: The Star, 19th July 2006 Supermax Invests in Seal Polymer The glove-making group, Supermax Corp Bhd, spent close to RM60 million to boost its associate Seal Polymer’s glove output since taking a controlling stake in the company. Some

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RM50 million was used to establish Seal Polymer’s new 18 line factory in Taiping while up to RM8 million was invested for upgrading the company’s 25 line plant in Lahat. The expanded glove-making group under Supermax can collectively produce up to 23.3 billion pieces of gloves annually from 2006.

market. SICOM’s Board of Directors and NYBOT’s Board of Governors have both approved the MoU.

Source: New Straits Times, 29th August 2006

Thailand

Top Glove Targets Media-Flex Top Glove, the world’s largest glovemaker, hopes to turnaround Singapore stock exchange-listed Medi-Flex by August 2007. Medi-Flex produces 1.6 billion pieces of medical and clean room gloves per year. Clean room gloves are usually priced 15-20 per cent higher than the normal examination gloves. Top Glove told the stock exchange that it was going to buy 60.06 per cent in Medi-Flex for S$21 million by subscribing to 300.3 million shares at S$0.07 each. Source: New Straits Times, 19 October 2006

Source: 2006

Rubber Asia, November-December

Latex Standards to be Revised The Thailand Industrial Standards Institute (TISI) is planning to revise the standards of NR latex concentrate to maintain the country’s export lead in the rubber market. Latex operators and state agencies, such as the National Bureau of Agricultural Commodity and Food Standards, had agreed that the physical and chemical properties of rubber were to be improved. The current standard, titled TIS 980-2533, has been in force since 1990. Source: Bangkok Post, 8th July 2006

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Ban on Rubberwood Exports The ban on sawn rubberwood exports was tightened by including roughly-sawn finger-jointed planks, effective August 11, 2006. The move was in response to the concern from the furniture manufacturers that there was still a shortage of rubberwood in the country. Minister of Plantation Industries and Commodities, Datuk Peter Chin, said that one of the main reasons for rubberwood supply inconsistency was the continued export of sawn rubberwood, disguised as roughly-sawn finger-jointed planks. Source: New Straits Times, 12th July 2006

Singapore

AFET to Trade Online The Agricultural Futures Trading Commission has granted the Agricultural Futures Exchange of Thailand (AFET) permission to start online trading service in a bid to raise AFET’s trading volume. Internet trading will facilitate investors as they can directly carry out transactions without traders. However, customers must trade via websites of brokers. When they send an order, it will be passed through control and riskmanagement systems of brokers to be verified first. There are five agricultural products trading on AFET which include RSS3, STR 20 and latex along with rice and tapioca starch. Source: 2006

www.nationmultimedia.com 29 th July

SICOM – NYBOT Collaboration

Import Quota by China

The Singapore Commodity Exchange (SICOM) and the New York Board of Trade (NYBOT) have signed a Memorandum of Understanding (MoU) envisaging collaboration on projects that will be mutually beneficial, such as information sharing, joint educational seminars and symposiums and other products and services. Such enhanced cooperation, according to SICOM’s Chairman Lim Hod Teck, will leverage on NYBOT’s expertise in commodities and SICOM’s knowledge of the Asian market to meet the growing needs of the Asian commodity

China has imposed import quotas on Thai rubber at the Chiang Saen Customs Office in the northern province of Chiang Rai. Rubber is one of the products listed under the Thai-Chinese Free-Trade Agreement’s early-harvest programme. Despite zero import tariffs, China is able to impose any restrictions or quotas to protect its farmers and industries.

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Source: www.nationmultimedia.com September 2006

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Yokohama’s Two Phase Plan

GERUCO Reaches Agreement with Cambodia

Yokohama has a two-phase production plan in Thailand. The first was the production of bus and truck radial tyres at a plant with a capacity of 350,000 units per year. Phase two, which is a new factory making tyres for sport-utility vehicles and light trucks, has been completed and will produce 1.4 million units per year. Both plants are in the Amata Nakorn Industrial Estate in Chon Buri province. Tyres from the new plant will be available in the Thai market by the second quarter of 2007. Investment budgets for phases one and two were US$48 million and US$100 million respectively. The new plant will be the biggest production facility for Yokohama in the world. Of the total production, 20 per cent will be for the local market. The remainder will be exported to the US, Europe and other parts of Southeast Asia.

Vietnam Rubber Corporation (GERUCO) reached an agreement with Cambodian authorities to cultivate rubber trees in three provinces in the neighbouring country. The provinces are Kratie, Kompongthom and Modolkiri. GERUCO has completed surveys and chosen 100,000 hectares for planting the trees. GERUCO has been cultivating rubber in Laos for the last two years.

Source: 2006

Source: 2006

www.nationmultimedia.com 26th August

Source: www.thanhnienews.com 20 th October 2006 Phu Rieng in Cambodia Phu Rieng Rubber Co. from the southern Binh Phuoc province has conducted a geographical survey and started reclaiming wasteland to plant 20,000 hectares of rubber in Kratie province of Cambodia. www.thanhniennews.com 1st November

PP Parawood Turns its Focus to Europe

Highland Province Targets 50,000 ha

PP Parawood is a major manufacturer of highquality wooden furniture. Currently, PP Parawood exports about 90 per cent of its products to the US and the rest to Europe. However, within two to three years it hopes to be selling 50 per cent of its products to the US with the remainder equally divided between the EU and the local market. One of the main problems being faced by the company is the shortage of raw material. The high prices of NR have deterred smallholders from replanting, reducing the supply of rubberwood.

Dak Lak province is carrying out a project to grow 30,000 ha of rubber trees, aiming to expand its total rubber cultivation to over 50,000 ha by 2010. To reach the target, the Provincial People’s Committee signed a memorandum of understanding with the GERUCO under which the latter will grow 15,000 ha of rubber trees and the remaining areas will be planted by the Dak Lak Rubber Co. and local farmers. Dak Lak has around 700,000 ha of land suitable for growing coffee, rubber and other crops.

Source: www.nationmultimedia.com November 2006

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Vietnam Dak Lak to Expand The Dak Lak Rubber Co plans to increase acreage under cultivation in southern Laos to 6,000 ha pursuant to an economic co-operation programme between the Central Highlands province of Dak Lak and the Lao provinces of Attapeu, Sarawan and Champasak. Since 2004, the company has planted 3,167 ha of rubber plantations. Source: www.vietnamnews.vnagency.vn, 22 nd September 2006

Source; www.thanhniennews.com 26th December 2006 GERUCO Restructured The state-run Vietnam Rubber Corporation has been restructured into a holding company known as Vietnam Rubber Group (VRG) to spur the rubber industry’s development and sharpen competitiveness as the country moves towards WTO membership. The parent company will include Dong Nai Rubber Corporation, Rubber Industry Corp, and Viet-Laos Rubber Corp. Source: www.thanhniennews.com 3rd November 2006 Motor cycle Exports The Ministry of Industry is planning to boost the country’s motorcycle industry over the next

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decade, hoping to earn US$ 300 million annually from exports by 2010. By 2015, it hopes the industry will expand further, with annual exports of motorcycles and parts amounting to US$ 500 million. With a strong domestic market, the country is expected to become one of the major centres for the motorbike industry in Asian countries in the coming years. In 2005, motorcyle output rose by 11.7 per cent to 1.8 million units, and seven foreign firms including Honda, Yamaha, Suzuki and VMEP accounted for 65 per cent of the total production. By 2010, the industry is expected to have an annual capacity of about 2.5 million units. Source: www.vietnamnews.vnagency.vn 20 th September 2006 Record High Exports Rubber exports would fetch a total of US$1.2 billion in 2006, a 78 per cent increase over the previous year and the nation’s third leading agroforestry exports, after rice and timber, according to the Vietnam Rubber Association. The volume of rubber exports, nearly 660,000 tonnes, presents a 31 per cent increase over last year’s. GERUCO accounted for 60 per cent of the rubber exported. Source: www.vietnamnews.vnagency.vn, 23 rd December 2006 Rubber Cultivation Expands Attracted by the high NR prices several provinces had been expanding rubber cultivation. Many provinces have devoted more acreage to rubber; Binh Phuoc Province added 8,300 ha, Tay Ninh 5,600 ha and Binh Duong, 3,000 ha. The rubber sector has set a goal to increase output by more than 60,000 tonnes annually, according to the Vietnam Rubber Association. Source: www.vietnamnews.vnagency.vn, 23 rd December 2006

RUBBER INDUSTRY NEWS China’s Investment in Rubber Plantations China, the world’s largest consumer of rubber, intends to develop rubber plantations in Malaysia and Myanmar. Chinese companies had set up rubber plantations in Laos two years ago and the trees would be ready for tapping in about four years. The Chinese government had also

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approached the Thai government to lease land to plant rubber trees. Source: New Straits Times, 28th July 2006 Philippines to Expand Rubber Cultivation The Philippines government set apart P55 million for the development of new rubber plantations in the country. South Cotabato Chief Agriculturist, Reynaldo Legaste, said the investment is part of the government’s commitment to expand rubber plantations in 11 priority provinces. The priority provinces are Antique, Benguet, Bukidnon, Isabela, Maguindanao, Negros Occidental, Occidental Mindoro, Palawan, Sarangani, Zamboanga and Sibugay. A National Rubber Development Program (NRDP) was launched in Kidapawan City in late August 2005 to build up the country’s position as one of the top players in the world NR industry. According to the Department of Agriculture’s Bureau of Agricultural Research, at least 81,925 hectares are currently planted with rubber in the country. Source:

Rubber India, December 2006

Rubber Prices in 2007 The brewing El Nino weather pattern and social unrest in Southern Thailand may curtail rubber supplies in 2007 in South-East Asia and boost prices, according to Kazuya Tetsu, Managing Director of Marubeni International Commodities (S) Pte Ltd. US weather officials predict that El Nino, the abnormal warming of waters in the equatorial Pacific Ocean that can cause drought in Australia, Indonesia and other parts of Southeast Asia would peak in the next few months. Supplies from Thailand, the world’s leading rubber producer and exporter, were disrupted because of separatist violence in the South. Tetsu said demand from the US next year was expected to remain strong, despite talk of slowing growth. In addition, Chinese appetite for the commodity was expected to remain buoyant ahead of the Olympics in 2008. Rubber production in India was also likely to grow at a sharp rate in 2007 to match its fast-growing economy, but most of the additional production would be consumed in the domestic markets. Source: New Straits Times, 21st December 2006 Glove Price Increase Chairman of the ASEAN Rubber Glove Manufacturers’ Association (ARGMA), Henry

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Tong, said to cope with the high rubber prices, members were encouraged to educate importers and end-users by providing latex price charts and other supporting documents explaining the increase in glove prices. As latex constitutes more than 60 per cent of the total production cost, it is inevitable for the glove manufacturers to pass the cost increase to customers. Glove manufacturers are still optimistic of the latex glove industry in spite of higher cost of raw materials due to the fact that NR latex gloves are technically still superior to synthetic rubber gloves. Demand for NR latex gloves are still strong especially with the ongoing concern on bird flu and other life-threatening diseases as well as increasing awareness of hygiene for protection and safety. ARGMA comprises gloves manufacturers’ associations of Malaysia, Thailand and Indonesia. Source:

BERNAMA, 11th July 2006

Glove Sector Global demand for NR gloves remains strong but the high prices of latex squeeze industry players’ profit margins. The global demand for rubber gloves has been growing at 10 per cent annually. Of the annual world production of 120 billion rubber gloves, Malaysia contributes about 60 per cent, Thailand 30 per cent and Indonesia 10 per cent. Source: The Star, 13th September 2006 Global Automobiles Production According to the International Organisation of Motor Vehicle Manufacturers, global production of vehicles grew in the first half of 2006 by 6 per cent (almost 2 million vehicles), compared to the same period in 2005, reaching a total output of 35.4 million vehicles. For the year as a whole, production could rise by more than 5 per cent to 70 million vehicles. The markets grew at widely varying rates in the first half of 2006. Automobile production in NAFTA countries rose by about 2 per cent and the EU recorded an increase of 1.5 per cent. The number of vehicles manufactured in South America grew by 18 per cent and in the non-EU countries of Eastern Europe by 5.4 per cent. Production of automobiles rose by more than 4 per cent in Japan and by 5.5 per cent in South Korea. In other Asian countries, production skyrocketed by 18.5 per cent, with most of the increase registered in China and India. The world’s leading manufacturer of automobiles is the US (with an output of 6.1

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million vehicles in the first half of the year), followed by Japan (5.7 million vehicles), China (3.6 million), Germany (3 million) and South Korea (just under 2 million vehicles). Source: Press Release, OICA, Paris, 6th October 2006 OTR Shortage to Continue The shortage of off-the-road (OTR) tyres is predicted to last for another two years. The problem is not exactly shortage of raw materials to make OTR tyres but rather the capacity constraints of major manufacturers. In this background, Bridgestone is investing around 17 billion yen in OTR production and Michelin, US$ 85 million. Source:

Rubber Asia, September-October 2006

Asia to Dominate Carbon Black Production The carbon black industry is going through a time of intense change as the future growth will be in Asia, rather than in the established countries of the west. Of the total 9,300 kt of carbon black produced in 2006, around 70 per cent goes into tyres with a further 23 per cent going into belts, hoses and other rubber goods. The remaining 7 per cent is used in inks and as pigments in plastics and other products. The main driver of the carbon black business is the tyre industry, and the tyre industry is in the process of moving capacity to low cost countries. Hence the carbon black industry is trying to reduce capacity in the old world and expand into new regions. Global demand likely to grow to 11,300 kt in the five years to 2011. The increased growth will be driven by increased demand for tyres and vehicles in Asia. Source: European Rubber Journal, NovemberDecember 2006 EU Landfill Directive The European Union’s directive banning landfilling with shredded used tyres came into effect on 16 July 2006. All used tyres will have to be recovered, reused or recycled. This follows an earlier ban on landfilling of whole tyres in 2003. Source: 2006

Rubber Asia, November-December

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Rubber Sidewalks More than sixty cities around the US, including New York and Washington DC, have installed rubber sidewalks made from recycled tyres. Since 2001, thousands of old tyres have been transformed into crumbs, added with chemical binders and baked into sidewalk sections that weigh less than 11 pounds a square foot, or a quarter of the weight of concrete. Sidewalks of rubber coexist with tree roots more easily than concrete sidewalks. The latter buckles as roots grow under it; rubber merely bends. As a result, trees are spared from root damage. They also help recycle the vast supply of old tyres. Washington DC spent about US$ 60,000 to install 4,000 square feet of rubber sidewalks on several leafy blocks in the city’s Northeast section in early 2006. Sources: www.boingboing.net 26th July 2006 and www.usatoday.com 19th September 2006

ECONOMIC NEWS ADO Update 2006: Developing Asia and the Pacific According to the ADO Update the year 2006 was another good one for developing Asia and the Pacific. The regional economy was expected to grow by 7.7 per cent, an upward revision of 0.5 percentage points from the ADO 2006 forecast in April. Growth is also expected to be robust in 2007, though some easing is likely as demand from industrial countries slows. The ADO Update projects growth for 2007 of 7.1 per cent, up marginally from the ADO 2006 forecast of 7.0 per cent. Fast growth at a regional level is supported by strong performances by the PRC and India, since together these two economies account for over 50 per cent of regional GDP. The remaining economies of developing Asia are expected to grow by more modest averages: 5.5 per cent in 2006 and 5.1 per cent in 2007. The outlook for Southeast Asia has weakened marginally as downward revisions for Malaysia and Thailand outweigh upgrades for the Philippines and Singapore. The forecast for growth in 2007 is based on generally favorable external conditions, but it factors in tighter global liquidity and softer growth in the industrial countries. The forecast also anticipates oil prices staying high. The impact on commerce of the recent heightened security alert on international air travel is expected to be short-lived.

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In the first half of 2006, East Asia grew at a fast tempo and a growth of 8.2 per cent is expected for the year, up from the estimate of 7.7 per cent made in ADO 2006. The upward revision reflects a faster expansion in the PRC on greater than expected strength of fixed investment and exports. The PRC’s growth for 2006 is projected at 10.4 per cent. South Asia continues to make strong headway. Growth of 7.5 per cent is estimated for 2006, slightly higher than April’s 7.3 per cent forecast. Annual income growth in the sub-region has averaged 7.7 per cent since 2002, outpacing Southeast Asia by about 2 percentage points and almost matching that of East Asia. Recent data provide a basis for modestly upgrading forecasts for India, Bangladesh and Pakistan as well as for other smaller economies. South Asian growth is expected to consolidate at 7.5 per cent in 2007, an unchanged aggregate from 2006. In Southeast Asia, growth in Thailand and Malaysia could be prone to weakness next year. Thailand’s growth forecast for 2006 has been reset at 4.0 per cent from 5.5 per cent while Malaysia’s is adjusted to 5.0 per cent from 5.8 per cent. In Thailand, since political uncertainty is clouding the near term, investors are likely to defer projects until the direction ahead is clearer. Public sector investment programs may also take a back seat until the new government resolves vexed political issues. If heightened security concerns were to impact on travel and tourism, this would be another negative element for the country. Vietnam’s entry into WTO should help support growth at 8.0 per cent. South East Asia’s projected growth for 2007 has been revised downwards at 5.3 per cent. The sub-regional averages for Central Asia and the Pacific are heavily influenced by the outlook for oil prices, and the baseline forecast assumes a higher level in 2007 than was predicted in ADO 2006. For Central Asia, the Update revises growth for 2007 up to 10.3 per cent from 9.8 per cent in ADO 2006, in reflection of an improved outlook for the two major oil producers Azerbaijan and Kazakhstan. In the Pacific, most economies are totally reliant on fuel imports, but Papua New Guinea, with about two fifths of the sub-region’s GDP, and Timor-Leste are net oil exporters. Upward revisions to their growth projections have lifted the aggregate Pacific outlook. Looking ahead, developing Asia’s growth in 2007 is now expected to be 7.1 per cent, up a notch from the 7.0 per cent forecast in ADO 2006 in April. This minor revision balances a less optimistic outlook for Southeast Asia with a positive reassessment of East Asia’s prospects.

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GDP Growth in Developing Asia and the Pacific 2005-2007 (%) Region Developing Asia Central Asia East Asia South Asia Southeast Asia The Pacific

2005 (Actual) 7.6 10.9 7.9 8.1 5.5 2.3

2006 2007 ADO ADO 2006 Update 2006 Update 7.2 7.7 7.0 7.1 10.3 11.3 9.8 10.3 7.7 8.2 7.1 7.5 7.3 7.5 7.5 7.5 5.5 5.4 5.7 5.3 2.9 3.3 3.0 3.4

GDP Growth in ANRPC Member Countries 2005-2007 (%) Country India Indonesia Malaysia Papua New Guinea Singapore Sri Lanka Thailand Vietnam

2005 (Actual) 8.5 5.0 5.5

2006 2007 ADO ADO 2006 Update 2006 Update 7.6 7.8 7.8 7.8 5.4 5.4 6.0 6.0 5.5 5.2 5.8 5.0

2.9

3.2

3.5

3.0

4.0

2.9 6.0 7.0 7.3

6.1 5.3 4.7 7.8

6.6 6.1 4.2 7.8

4.6 5.2 5.5 8.0

4.6 5.8 4.0 8.0

Source: Asian Development Outlook, April 2006 and Asian Development Outlook Update, September 2006, Asian Development Bank ADO Update 2006: Industrial Countries The pace of US economic activity is slowing. Real GDP grew by 2.9 per cent in the second quarter, after registering 5.6 per cent growth in the first quarter. The relatively sharp deceleration in the second quarter primarily reflected in about equal measure a weakening in consumer spending and in fixed investment expenditure, mainly in equipment and software. Monetary tightening over the past 2 years is apparently taking its toll on housing markets. A cooling in house price inflation appears to be damping consumer activity and confidence, cutting strong consumer spending that has been supported by the wealth effect of rapidly rising property prices. Inflation has clearly edged up, with sustained high oil and commodity prices feeding into both consumer prices and production costs. The US trade and fiscal deficits also continue to cause concern. The baseline projection for US real GDP growth is 3.3 per cent for 2006, slowing to 2.8 per cent in 2007. Despite the strengthening

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downside risks, and rising concerns that the housing market could unravel and trigger weaker demand, US fundamentals remain generally positive. The Japanese economy continues a moderate expansion based on broadening domestic demand. Second-quarter GDP growth came in at 0.8 per cent, after 2.7 per cent in the first. Although second-quarter performance was rather flat, this was largely due to a reduction in public spending. Private domestic demand continues to firm up on the back of buoyant business investment and robust consumer spending. Business investment rose by 11.1 per cent in the first half of 2006 from the previous year. Increases in wage income and stronger labor market improvements have boosted consumer confidence. While exports grew robustly through the first half of 2006, the contribution of net exports to GDP growth turned negative in the second quarter, reflecting a surge in imports. Japan is set to enjoy a healthy economic expansion with GDP expected to grow at 2.8 per cent and 2.4 per cent in 2006 and 2007 respectively. The euro zone economy grew by 3.6 per cent in the second quarter of 2006, up from 3.2 per cent in the first. Indeed, almost all major euro zone economies except Italy were stronger in the second quarter than the first, indicating a generally harmonious recovery across the zone. The second-quarter acceleration reflected strengthening domestic demand, including a recovery in capital formation. Industrial production has accelerated in major euro zone economies since the beginning of 2006. Robust business activity has exerted a positive influence on the labor market, and unemployment rates have trended down. GDP growth in the euro zone economy is forecasted at 2.3 per cent in 2006. A combination of moderating exports and tightening fiscal policy is expected to bring down growth to 1.8 per cent in 2007. GDP Growth in Industrial Countries 2005-2007 (%) 2006 2007 2005 ADO Update ADO Update (Actual) 2006 2006 Industrial countries 2.5 2.9 2.9 2.6 2.4 United States 3.2 3.3 3.3 3.1 2.8 Euro zone 1.3 2.1 2.3 2.0 1.8 Japan 2.6 2.9 2.8 2.4 2.4 Source: Asian Development Outlook, April 2006 and Asian Development Outlook Update, September 2006, Asian Development Bank

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World Economic Outlook: IMF Growth was particularly strong in the United States in the first quarter of 2006, although it slowed in the second quarter, because of a cooling housing market and rising fuel costs. The expansion gathered momentum in the euro area and the Japanese economy continued to expand. Growth in China has accelerated even further, emerging Asia and Europe have continued to grow rapidly, and the pace of activity has picked up in Latin America. Middle Eastern oil exporters and low income countries in Africa have also maintained impressive growth rates. Sustained high rates of global growth have absorbed spare capacity and led to some emerging signs of inflationary pressures. Against this background, central banks in the major advanced economies have taken steps to tighten monetary conditions. Since late 2005, the US dollar has depreciated against the euro and to a lesser degree the yen, partly reversing its appreciation during the previous 12 months. The US current account deficit has continued to widen and the surpluses in parts of emerging Asia and oil exporting countries have increased further. Rising inflation concerns and tightening by major central banks had a marked impact on financial markets. Oil and other commodity prices continued at elevated levels in the first eight months of 2006, with petroleum and metal prices reaching new highs. Notwithstanding tightening financial conditions, the baseline forecast for world output growth has been marked up to 5.1 per cent in 2006 and 4.9 per cent in 2007. This would be the strongest four-year period of global expansion since the early 1970s. This favourable outlook depends on the view that inflationary pressures will be successfully contained with modest further interest rate increases by the major central banks, the growth of domestic demand will be better balanced across the advanced economies, emerging and developing countries will largely avoid capacity bottlenecks, and global financial market conditions will be more stable. The US economy would grow by 3.4 per cent in 2006, before slowing to 2.9 per cent in 2007. A cooling housing market would continue to dampen private consumption and residential investment, but corporate investment should be supported by high capacity use and strong profitability. Growth in the euro area would rise to 2.4 per cent in

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2006 – its highest rate in six years – before moderating to 2 per cent in 2007. Stronger corporate balance sheets have paved the way for higher investment, rising employment and a better balanced expansion. The Japanese economy would grow by 2.7 per cent in 2006, based on solid domestic demand, before easing to 2.1 per cent in 2007. Growth in emerging markets and developing countries would remain very strong at 7.3 per cent in 2006, and slow only marginally to 7.2 per cent in 2007. China would sustain growth around 10 per cent – an upward revision relative to the April 2006 World Economic Outlook – while India and Russia would also continue to grow rapidly. Latin American countries would continue to lag, although growth prospects have been marked up in this region. Turning now to the downside, markets have been concerned that a continued build up of inflation pressures in advanced economies could require a more aggressive monetary policy response to cool the growth momentum, particularly in the United States. A related risk to the outlook comes from the continued potential for supply-side shocks in the oil market, which could give a further upward impetus to international oil prices, thus exacerbating inflationary pressures while cooling household demand. In the baseline forecast, the international oil rice is expected to average US$75 a barrel in 2007. There are also supply-side risks from nonfuel commodity prices. In total, non-fuel commodities represent almost twice as large a share of world trade as fuels and can have an important impact on the global economic environment, both for consumers and the exporters. A key risk on the demand side is that the continued cooling of advanced-economy housing markets will weaken household balance sheets and undercut aggregate demand. At this point, concerns center on the United States, although other markets, such as those in Ireland, Spain and United Kingdom, also still seem overvalued by most conventional measures. Other demand-side risks relate to the extent to which expansions in Europe and Japan will be sustained by increasing strength of household demand, reducing reliance on exports and exposure to a slowdown of demand in the United States.

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World Output Growth 2004-2007 (%) World Advanced Economies United States Euro area Germany France Italy Spain Japan United Kingdom Canada Korea Russia Developing Asia China India Indonesia Malaysia Thailand Brazil Mexico Source: World September, 2006

2004 5.3 3.2 3.9 2.1 1.2 2.0 1.1 3.1 2.3 3.3 3.3 4.7 7.2 8.8 10.1 8.0 5.1 7.2 6.2 4.9 4.2

2005 4.9 2.6 3.2 1.3 0.9 1.2 3.4 2.6 1.9 2.9 4.0 6.4 9.0 10.2 8.5 5.6 5.2 4.5 2.3 3.0

Economic

2006 5.1 3.1 3.4 2.4 2.0 2.4 1.5 3.4 2.7 2.7 3.1 5.0 6.5 8.7 10.0 8.3 5.2 5.5 4.5 3.6 4.0

Outlook,

2007 4.9 2.7 2.7 2.0 1.3 2.3 1.3 3.0 2.1 2.7 3.0 4.3 6.5 8.6 10.0 7.3 6.0 5.2 5.0 4.0 3.5 IMF,

OECD Economic Outlook Until recently, the OECD area was enjoying a prolonged period of non-inflationary growth despite rising oil and commodity prices. Underlying these favourable trends, persistent wage moderation provided for both price stability and strongly rising profits as well as vigorous job creation in the main OECD regions. This smooth performance has been somewhat disturbed recently. In the United States, signs of inflationary pressures and labour market tensions have recently built up while investment in housing has fallen sharply, following a long boom in residential construction. In the OECD area as a whole, however, there are still few signs of general overheating. Aggregate demand and supply broadly match, in contrast with the previous cyclical peak at the turn of the century when demand pressures were much stronger. While in the United States and Japan aggregate demand may be somewhat above trend, in the euro area substantial slack remains. Rather than a major slowdown, what the world economy may be facing is a rebalancing

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of growth across OECD regions. Indeed, recent developments point to an unwinding of cyclical differences, with activity having slowed in the United States and Japan and gathering speed in Europe. Looking ahead, and given what is seemingly a mild degree of initial excess demand in the United States and Japan, the slowdown in these countries should remain well-contained. In the euro area, recent business and consumer confidence suggest that a solid upswing may be underway. In addition, growth should remain buoyant in China, India, Russia and other emerging economies. All in all, Japan and the euro area would grow slightly above trend over the next two years while US growth would return progressively to potential in the course of 2007, following the recent steep deceleration in activity. The degree of overheating in the US still looks modest despite some tensions in US labour markets which should recede progressively. In fact, the recent increase in core inflation owed a lot to past hikes in oil and gasoline prices, which have now partly been reversed. Because of its high energy intensity, the American economy has been subjected to a stronger external inflationary shock than the OECD average. Assuming in oil prices stabilizing around their current levels, a mild economic slowdown may be enough to progressively restore price stability in the United States. In Japan, the return to price stability is proving longer and less assured than expected. Looking at GDP deflators and consumer price inflation excluding food and energy, deflation is not over yet. Although strong profits and export markets will continue to underpin Japan’s growth, it also relies on at least moderate support from household spending. In the euro area, activity has finally taken off, following a series of aborted recoveries. The recent fall in oil prices has driven headline inflation back below the 2 per cent threshold. Although in recent years housing markets have played an important role in supporting economic activity, prices may now have reached unsustainable highs in certain countries (notably the United States, Denmark, France and Spain), at least according to OECD Secretariat estimates. When price corrections set in, housing markets may thus reduce the speed of economic expansion even though the economy at large is not strongly overheating and macroeconomic policies are only mildly restrictive.

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GDP Growth in OECD Countries, 2006-2008 (%) United States Canada Japan Euro area Germany France Italy United Kingdom Total OECD

2006 3.3 2.8 1.8 2.6 2.6 2.1 1.8 2.6 3.2

2007 2.4 2.7 2.0 2.2 1.8 2.2 1.4 2.6 2.5

2008 2.7 3.1 2.0 2.3 2.1 2.3 1.6 2.8 2.7

Source: OECD Economic Outlook, Volume 80, November 2006 US Indices Improve The US Conference Board’s Consumer Confidence Index had posted a sharp decline in August 2006 to 99.6 (1985=100) after recording a moderate increase in July to 107.0. Thereafter the Index increased to 105.9 in September before edging down to 105.4 in October 2006. The Index, which was virtually unchanged in November, improved in December reaching 109.0. The Present Situation Index increased to 129.9 in December from 125.4 in November. The Expectations Index improved to 95.1 in December from 91.9 in November. Despite the latest improvement in the Index, there is little to suggest that the pace of economic activity in the final quarter of 2006 is anything but moderately better than its uninspiring performance in early 2006. Given the see-saw pattern in recent months, it is too soon to tell if this boost in confidence is a genuine signal that better times are ahead. Source: www.conferenceboard.org, December 2006 Asia-Pacific Region Outlook The rising economic powerhouses of China and India are driving the Asia-Pacific region’s economic performance. Added stimulus has come from the continuing revival of the Japanese economy. These three countries together contribute 62 per cent of the GDP of the region and 44 per cent of imports, creating considerable opportunities for their trading partners. China’s growth is accelerating, despite policies to moderate its pace. Growth in the second quarter of 2006 stood at an annualized 11.3 per cent, the fastest since the mid-1990s. The Indian economy, driven by industrial production and a booming service sector, is expected to grow at 8.2 per cent in 2006. With total consumption accounting for around two 14

thirds of GDP, a vibrant domestic market provided the backbone for economic expansion. Japan has emerged from its decade-long economic slump, with GDP estimated to grow at 2.8 per cent in 2006, up from 2.6 per cent in 2005. The robust growth of the United States and the continued recovery in the economies of the Euro Zone contributed to the good performance of the developing Asia and Pacific region. For developing Asia-Pacific economies, the economic growth outlook in 2007 is one of continued dynamism. Economic growth is projected at 6.9 per cent in 2007, marginally lower than in 2006. The global economic environment is expected to remain favourable, particularly the ongoing domestic demand recovery in Japan. A moderate decline is expected in global electronics demand in 2007 as well as a slightly less accommodative macroeconomic policy stance, reflected in a high level of domestic interest rates and a limited role of fiscal policy in many Asian economies. These developments are expected to marginally mitigate the positive impacts of global economic conditions on AsiaPacific economies in 2007. The growth momentum in the Asia-Pacific region in 2007 is expected to come from strong growth in China and India and a rebound in economic growth in the South-East Asian economies. In China, GDP growth is expected to be about 9.9 per cent in 2007, slightly less than the 10.2 per cent growth of 2006. India is expected to grow at 8.1 per cent in 2007, virtually unchanged from 2006. Due to weakening demand for imports among the advanced economies, GDP growth in East and North-East Asia (except China) is projected to soften in 2007. In North and Central Asia, growth is projected to ease slightly, to 6.5 per cent. A modest rebound in GDP growth in the South-East Asian economies is expected in 2007 as the factors constraining domestic demand recede. In Indonesia, investment is expected to be boosted by lower interest rates and new probusiness regulations that are coming into effect. Strong electronics exports and higher development spending related to the Ninth Malaysia Plan (2006-2010) would help to boost investments in Malaysia. Source: Key Economic Developments and Prospects in the Asia Pacific Region 2007, UNESCAP, November 2006 World Trade Report 2006 The deceleration of global trade expansion observed since mid 2004 was arrested and

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reversed in the second quarter of 2005. The yearly real growth of world merchandise exports averaged 6 per cent in 2005 after a strong growth of 9.5 per cent in the preceding year. Regions and countries exporting fuels and other mining products, which benefited strongly from relative price increase expanded their imports sharply. According to provisional data, the Commonwealth of Independent States (CIS), South and Central America, Africa and the Middle East expanded their imports at least two times faster than world trade. Large variations of relative prices had a major impact on nominal trade developments in 2005. The prices of fuels and metals rose by about one-third in 2005, while the prices of many agricultural products and manufactures increased only moderately or stagnated. Prices for global merchandise trade increased on average markedly less than in the preceding year, largely due to the deceleration of prices for manufactured goods, which account for about three-quarters of merchandise trade. World merchandise exports rose 13 per cent and exceeded for the first time the US$10 trillion mark. Oil market developments were the principal factor leading to the sharp rise in the exports of Africa, the CIS and the Middle East. In 2005, Africa and the Middle East recorded their largest share in world merchandise exports since the mid-1980s. Europe, the largest trader among the major geographic regions, recorded by far the weakest export and import growth in 2005. North America’s nominal trade growth decelerated moderately and rose roughly in line with global trade. Merchandise trade growth of the Asian region exceeded on average that of global trade, but large variations in export performance could be observed between China and the other leading traders in Asia. Source: World Trade Report 2006, WTO Secretariat, July 2006 World Investment Report 2006 Inflows of foreign direct investment (FDI) were substantial in 2005. They rose by 29 per cent – to reach US$ 916 billion – having already increased by 27 per cent in 2004. Nevertheless, world inflows remained far below the 2000 peak of US$ 1.4 trillion. Similar to trends in the late 1990s, the recent upsurge in FDI reflects a greater level of cross-border mergers and acquisitions (M&As), especially among developed countries. It also reflects higher growth rates in some developed countries as well as strong economic performance in many developing and

transition economies. Inflows to developed countries in 2005 amounted to US$ 542 billion, an increase of 37 per cent over 2004, while to developing countries they rose to the highest level ever recorded, US$ 334 billion. In percentage terms, the share of developed countries increased somewhat, to 59 per cent of global inward FDI. The share of developing countries was 36 per cent and that of South-east Europe and the Commonwealth of Independent States (CIS) was about 4 per cent. Services gained the most from the surge of FDI, particularly finance, telecommunications and real estate. There was a sharp decline in the share of manufacturing in FDI and a steep rise of FDI into the primary sector, primarily the petroleum industry. According to estimates by UNCTAD, the universe of TNCs now spans some 77,000 parent companies with over 770,000 foreign affiliates. The TNC universe continues to be dominated by firms from the Triad – the EU, Japan and the United States – home to 85 of the world’s top 100 TNCs in 2004. The automobile industry dominates the list, followed by pharmaceuticals and telecommunications. In 2004 there were five companies from developing economies in the list of the top 100 TNCs, all with headquarters in Asia and three of them were State-owned. These five companies – Hutchinson Whamoa (Hong Kong), Petronas (Malaysia), Singtel (Singapore) Samsung Electronics (the Republic of Korea) and CITIC Group (China) – topped the list of the largest 100 TNCs from developing countries. Altogether, 77 of the top 100 TNCs in developing countries had their headquarters in Asia; the remaining were equally distributed between Africa and Latin America. Source: World Investment UNCTAD, October 2006

Report

2006,

NR MARKET REVIEW1 NR PRICES TO BE STEADY DESPITE A PROJECTED MILD SLOWDOWN IN THE WORLD ECONOMY The global economic recovery from 2002 helped the NR market to recover from the prolonged slump began in mid-1997, triggered by the Asian financial crisis. The positive trend in NR prices continued thereafter though there had been short-term fluctuations caused mainly by seasonal, speculative and currency factors. The

1 The views expressed are entirely the ANRPC Secretariat’s.

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main factors contributing to the rise in NR prices included robust growth of the world economy, continued strong presence of China in the market, climatic factors, bullish futures and high oil prices. The world economy which expanded by a nominal 1.2 per cent in 2001 grew by 1.9 and 3.2 per cent in 2002 and 2003 respectively. In 2004, it had registered the highest growth rate since 1976 at 5.3 per cent. NR prices in H1 of 2005 had been marginally lower compared to the same period in the previous year in most of the markets but by the middle of the year they rose above 2004 levels. The third and fourth quarters of 2005 recorded steady improvement in prices and the year ended on a higher note. Global GDP expanded in 2005 by 4.9 per cent, despite the mild slow down in the euro zone. Even with the high oil prices and natural disasters, industrial activity in H2 of 2005 was relatively stronger compared to H1. The US and Chinese economies grew by 3.2 and 10.4 per cent respectively in 2005. The long anticipated economic recovery of Japan took hold in 2005 with a GDP growth of 2.7 per cent. India recorded an impressive GDP growth of 8.5 per cent in 2005 (World Economic Outlook, International Monetary Fund, September 2006 & Asian Development Outlook Update, Asian Development Bank, September 2006). Supply-side factors also supported NR prices in 2005. The drought in Thailand which persisted until May 2005 and the intermittent rains in the last quarter of the year led to a 6.2 per cent decline in Thai NR production compared to the previous year. The typhoon Damrey which slammed into Hainan Island in September 2005 had damaged rubber plantations, trimming Chinese production. Oil prices also appeared to have influenced the NR price movements in 2005. The average price of WTI oil in H2 of 2005 was higher at US $ 61.60 per barrel, compared to that of H1 at US $ 51.30. Major Factors Influencing NR Market in 2006 Most of the factors which influenced the trends in NR prices in the recent years continued to impact in 2006 as well. The single major factor which influences the price of industrial raw materials including NR is the state of the world economy. It was projected that the world economy would record a growth of 5.1 per cent in 2006. The world GDP growth in 2005 being 4.9 per cent, the projection for 2006 indicated continuance of the tempo of global economic growth (World Economic Outlook, IMF, September 2006). China maintained its steady growth in 2006 with a GDP expansion of 10.7 per cent which was marginally higher than that of 2005 at 10.4 per cent. (News Release,

16

National Bureau of Statistics of China, January 2007). The GDP of the US increased by 3.3 per cent in 2006 according to preliminary estimates. (News Release, US Bureau of Economic Analysis, January 2007). Japan’s real GDP expanded moderately by 1.9 per cent in 2006 (Government Economic Outlook, Bank of Japan, January 2007). The growth of the world economy in 2006 generated sustained demand for raw materials including NR. However, there had been apprehensions stemming from a mild slowdown in some parts of the world from the second quarter of the year. The tight supply concerns usual to the onset of the wintering season were present in February. Another factor was the unusual rains in May and June in South East Asian countries, especially in the southern provinces of Thailand. The unusual showers at a time when supply was expected to improve after the wintering season caused frantic buying and raised NR prices from mid-May to mid-July. As Thailand is the major producer of RSS, the production squeeze appeared to have positively influenced the price premium of RSS 3 over STR 20 during the period. From July beginning, NR market arrivals increased as weather conditions improved. Again towards the end of the year there were supply disruptions due to heavy downpours and rains in South-East Asia. Insurgency in the southern rubber growing provinces of Thailand continued to be a supply deterrent factor. The rubber futures market was bullish at the turn of the year and the price (six month forward price in TOCOM) on the last trading day of January was 257 Yen per kg compared to Yen 200 per kg on the first trading day of December 2005. Thereafter, the NR futures market did not make much headway though there had been minor ups and downs and the price on the last trading day of April was Yen 255 per kg. There were fresh leads from early May amidst supply constraints and intensive speculation. The price recorded on the last trading day of May was Yen 304 per kg and the monthly average was Yen 285 per kg. The monthly average price increased further to Yen 304 per kg in June. Prices declined in July as NR supply improved and the price was Yen 277 per kg on the last trading day. The decline continued and the price was Yen 216 per kg on the last trading day of September. Though prices improved moderately in the initial weeks of October, there was a decline towards the end of the month reaching Yen 216 per kg on the last trading day. And the prices further declined in November reaching Yen 202 per kg on the last trading day. However, prices recovered in December on account of NR supply shrinkage due to adverse weather conditions. Currency factors generally have favoured NR ANRPC Newsletter

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prices in the near past. The US monetary authority had been allowing the US dollar to depreciate as a means to ease the burden of its growing current account deficit. This led to an appreciation of several other currencies including NR producers’ currencies. Indonesian Rupiah, Malaysian Ringgit and Thai Baht have been appreciating from the beginning of the year. The exchange value of the three currencies against the US dollar which stood at Rp 9724, Baht 40.77 and RM 3.78 on the first day of the current year rose to Rp 8767, Baht 37.50 and RM 3.63 respectively by the turn of May. Thereafter, Rupiah lost its value marginally (reaching Rp 9292 by June end) with no much change in the other two currencies. But the depreciation of the Rupiah did not have a notable impact on the NR market as it occurred in a phase of supply constraints due to the unexpected showers. From July onwards the major producer currencies have been more or less stable and improved towards the end of the year with rates at Rp 8964, Baht 36.14 and RM 3.53 to the US dollar on the last trading day of the year.

NR Market – 2006 Generally, NR prices remain flat during the early weeks of a year because of the lack of fresh market leads in the holiday season. However, in 2006 NR prices have been soaring to new highs in the initial weeks. From mid-February, NR prices remained nearly flat for a few weeks till April end, followed by a steady rise which continued until mid-July. Thereafter, NR prices have been declining because of improved supply and other factors. There was a short-lived northward movement in NR prices in October. NR prices improved towards the end of the year mainly because of the adverse climatic conditions in the major producing regions. TSR 20 Prices In Q1 of 2006, average prices of SIR 20, SMR 20 and STR 20 were 15.7, 14.1 and 12.3 percent higher respectively over the previous quarter. Prices continued to increase in Q2 of 2006 with average prices of SIR 20, SMR 20 and STR 20 increasing by 13.7, 12.8 and 12.1 per cent over Q1 of 2006 respectively. Average SIR 20, SMR 20 and STR 20 prices in Q3 declined marginally over Q2 by 0.3, 2.0 and 4.3 per cent respectively. In the last quarter of the year average SIR 20, SMR 20 and STR 20 prices declined noticeably; by 19.4, 20.4 and 21.6 per cent respectively over Q3. Table 1. Average TSR 20 prices in 2005 & 2006 TSR

In H1 of the current year the average WTI oil price was US $ 66.84 per barrel. The oil price, which had been flat during the first three months of the year, rose in April because of reported reduced inventories, unrest in Nigeria, Middle East developments etc. From May to August, the oil price averaged above US $ 70 per barrel. Thereafter, oil prices retreated and the average price of WTI oil in December was US$ 61.96 per barrel (www. eia.gov, January 2007 & Bloomberg News, April 20, 2006). The rise in the price of oil could exert pressure on SR prices and may influence the SR:NR consumption ratio. In 2005 the share of NR in China’s rubber imports had increased to 56.4 per cent from 53.9 per cent in 2004. However, during January-October 2006 the share of NR in China’s rubber imports declined to 52.8 per cent. Until August 2006 price of NR had been notably higher than that of SR. 17

SIR 20 (US cents/kg) SMR 20(Sen/kg) STR 20(Baht/kg)

2005

2006 Q1

Q2

Q3

Q4

139.37 187.43 213.17 212.63 171.35 523.07 690.01 781.76 762.19 606.51 56.53

74.80

84.11

80.47

63.05

Source: ANRPC Secretariat The SIR 20 prices, which recovered in December 2005 after a marginal decline in the previous month, began improving further from the turn of the current year. The prices continued to increase until mid-February and the month recorded an average price of US cents 193 per kg compared to US cents 164 per kg in December 2005; up by some 17.7 per cent. From mid-February prices remained more or less flat for a few weeks and then improved from the beginning of May with the weekly average price reaching US cents 243.71 per kg. Thereafter prices started retreating gradually and the weekly ANRPC Newsletter

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average SIR 20 price reached US cents 177 per kg in the last week of September. The month of October showed a short lived recovery in prices followed by further declines in November. There was some improvement in the prices towards the end of the year when it increased to US cents 182 per kg in the last week of the year from US cents 154 per kg in the last week of November.

The SMR 20 prices also had started improving from the beginning of December 2005 after a mild slow down in the previous month. Prices continued to increase until around midFebruary. The monthly average SMR 20 price in February was higher at Sen 712 per kg compared to Sen 612 per kg in December, an increase of 16.3 per cent. This was followed by a few weeks of more or less flat prices. Prices began to improve further from the turn of May and the first week of July recorded an average price of Sen 875 per kg. Thereafter, SMR 20 prices started falling and the weekly average reached Sen 641.40 per kg by the last week of September. Prices showed a mild recovery in the first three weeks of October but again started falling towards the end of the month. The decline in the price continued until the end of November and the trend reversed with the price increasing from Sen 547 per kg in the last week of November to Sen 622 per kg in the last week of December.

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The prices of STR 20 also started improving from early December 2005 but at a more gradual pace compared to SIR 20 and SMR 20 prices. The STR 20 prices had declined less in the previous month compared to the prices of the other two grades. In January 2006 also the increase in STR 20 prices was gradual compared to SIR 20 and SMR 20 prices. But in February STR 20 prices recorded higher increase compared to the other grades. The average price of STR 20 in February was Baht 77.8 per kg compared to December’s Baht 68.1 per kg an increase of 14.2 per cent. Thereafter, prices remained nearly flat for a few weeks and began to improve around mid-May, lagging behind SIR 20 and SMR 20. The first week of July registered an average price of Baht 94.3 per kg for STR 20. Thereafter, prices began to decline with average weekly STR 20 prices reaching Baht 65.8 in the last week of September. In the first week of October prices mildly improved and remained flat during the following weeks before declining further in November. In December the price recovered reaching Baht 65.18 per kg in the last week compared to Baht 56.92 per kg in the last week of November. RSS Prices The prices of RSS grades in Singapore and Bangkok markets showed similar trends whereas Colombo and Kottayam markets displayed some variations. RSS 3 prices in Singapore and Bangkok increased in Q1 2006 by around 15.5 per cent over the previous quarter. In Q2 the RSS 3 prices in Singapore and Bangkok increased by 18.5 and 17.5 per cent respectively over Q1. And in Q3 the RSS 3 prices in Singapore and Bangkok declined at relatively higher rates at 10.7 and 11.1 per cent respectively compared to other markets. RSS 4 prices at Kottayam and RSS 3 prices in Colombo increased by 17.3 and 19.5 per cent respectively in Q1 2006 over the previous quarter. In the second quarter, Kottayam RSS 4 prices and

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Colombo RSS 3 prices increased by 24.2 and 19.4 per cent respectively over Q1. However in Q3, the RSS 4 prices in Kottayam and RSS 3 prices in Colombo declined by 7.0 and 2.3 per cent respectively over Q2. In the last quarter of the year average RSS 3 prices in Singapore and Bangkok markets declined by 21.4 and 22.3 per cent over Q2. In Colombo the average RSS 3 price declined at a lower rate of 16.6 per cent in Q4 over Q3. And in India the average RSS 4 prices recorded only a noticeably lower rate of decline in Q4 at 5.8 per cent over Q3. Table 2. Average RSS prices in 2005 & 2006 RSS RSS 4 Kottayam (Rs/kg) RSS 3 Singapore (Cents/kg) RSS 3 Colombo (Rs/kg) RSS 3 Bangkok (Baht/kg)

2006

2005

Q1

Q2

Q3

Q4

60.68

78.25

97.22

90.57

85.28

249.83 328.89 390.00 346.73 272.65 136.91 178.00 212.59 207.74 173.14 60.17

79.12

92.96

82.64

64.22

The Colombo RSS 3 prices which had been more or less flat in December 2005, started improving from the beginning of 2006. Prices continued to move up until mid-February with the month recording an average price of Rs184 per kg compared to Rs 147 per kg in December. Thereafter prices remained flat for a few weeks before improving from early May and the weekly average price of RSS 3 reached Rs 244.40 in the first week of July. Then prices began to decline and the weekly average price reached Rs 175.05 per kg in the first week of October followed by weeks of more or less flat prices before declining again in November. Prices recovered in December with the last week recording an average of Rs 180 per kg.

Source: ANRPC Secretariat The Singapore RSS 3 prices had started improving from early December 2005 after a marginal decline for a few weeks. The prices continued to increase until around mid-February and the month recorded an average price of Singapore cents 338 per kg compared to Singapore cents 284 per kg in December, an increase of 19 per cent. For the next few weeks prices remained more or less flat but began to improve from the turn of May. The last week of June had an average price of Singapore cents 438 per kg. Thereafter, prices retreated gradually and the weekly average price reached Singapore cents 282 per kg in the last week of September. The prices had been more or less stable in October but dipped in November averaging Singapore cents 240 per kg in the last week. The prices improved towards the end of the year with the last week recording a price of Singapore cents 299 per kg.

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In India, RSS 4 prices had been steadily rising from early December 2005 crossing Rs 70 per kg towards the end of the month. Prices continued to increase until around mid-February 2006 and the month recorded an average price of Rs 80.5 compared to Rs 68.90 per kg for December. This was followed by a few weeks of more or less flat prices. From early April, prices began to improve steadily with the average weekly price reaching around Rs 111 per kg in the week starting May 27 th . Thereafter, the prices more or less remained flat till mid July before declining gradually. The weekly average price of RSS 4 reached Rs 78.33 in the last week of September. In the month of October the RSS 4 prices registered a relatively faster recovery compared to the other markets with weekly average price reaching Rs 92.40 per kg in the last week. There was a deep dip in prices in November followed by a strong recovery in December. The last week of December recorded an average price of Rs 93.45 per kg compared to Rs 77.13 per kg in the last week of November. RSS 3 prices in Thailand, which had recovered in December 2005 from a marginal decline in the previous month, continued to increase until mid-February 2006. The average price of the grade in February was Baht 82.1 per kg compared to Baht 69.20 per kg in December 2005. The prices, which remained more or less flat for a few weeks from the middle of February, began to improve steadily from around mid-May and the weekly average reached Baht 104.1 in the first week of June. The prices were more or less flat until mid July. Thereafter, the prices began retreating with the weekly average RSS 3 price reaching Baht 70.18 per kg in the first week of September followed by weeks of more or less flat prices. The prices declined further in November and recovered in December reaching Baht 69.56 per kg in the last week compared to Baht 56.24 per kg in the last week of the previous month.

The price premium of RSS 3 over STR 20 in Thailand in 2005, which went above Baht 10 per kg in late July, had narrowed towards the end of the year. In the initial weeks of 2006 the price premium gradually rose reaching around Baht 6 per kg by early February. Then the price premium came down for a few weeks and began to rise from the end of March and in June the price difference was around Baht 11 per kg. With the improvement in NR supply the price premium of RSS 3 over STR 20 declined steadily in July beginning reaching around Baht 2 per kg by the end of the month. Thereafter, the premium almost disappeared. In December when the price of NR increased the price premium of RSS 3 over STR 20 also increased reaching Baht 4.38 per kg in the last week.

Price Volatility The co-efficient of variation (CV) of the weekly average prices of RSS and TSR 20 grades in different markets in 2005 and 2006 are presented in Table 3. RSS prices were relatively more volatile in 2006 compared to TSR 20 prices. Table 3. Co-efficient of variation of weekly average NR prices in 2005 & 2006 Market/grade Medan/SIR 20 Kuala Lumpur/SMR 20 Bangkok /STR 20 Kottayam/RSS 4 Singapore /RSS 3 Colombo/RSS 3 Bangkok /RSS 3

2005 9.0 12.2 11.9 14.0 10.2 15.3 14.2

2006 11.3 12.2 12.5 15.9 12.2 14.0 16.7

Source: ANRPC Secretariat

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SBR Vs RSS In 2005, SBR export unit values (Japan) and RSS 3 prices (cif) in Tokyo market averaged Yen 182.4 and 165.1 per kg respectively. The monthly SBR average export unit values which stayed below average monthly RSS prices from August 2003 had exhibited a reverse trend from July 2004 in line with the rising trend in the price of oil and the margin between the two widened notably in early 2005. However, by mid-2005 the gap narrowed considerably. From late December the trend reversed and RSS 3 prices went above SBR export unit values. During JanuarySeptember 2006 the monthly average RSS 3 price in Tokyo was higher at Yen 256.0 per kg compared to the SBR average export unit value of Yen 212 per kg. However, the difference between the two which peaked to Yen 117 per kg in June declined considerably in the recent months and in September 2006 the gap narrowed to 2 yen per kg (Rubber Statistical Bulletin, IRSG, January-February 2007).

production in some of the member countries had been adversely affected by the drought in H1 of the year, rains towards the end of the year and other factors. The ANRPC countries together produced 7.724 million tonnes in 2005, recording an average annual compound growth rate of 7.24 per cent over the last five years. The estimated world output of NR in 2005 was 8.80 million tonnes. The positive supply response to higher prices is evident from the annual growth rates recorded in 2002, 2003 and 2004 at 6.6, 9.5 and 9.4 per cent respectively. Table 4. NR production during 2001-2005 (‘000 tonnes) Country India Indonesia Malaysia Papua New Guinea Sri Lanka Thailand Vietnam ANRPC Growth (%)

2001 2002 2003 2004 2005 631.5 640.8 707.1 742.6 772.0 1607.3 1630.0 1792.0 2066.0 2271.0 882.1 889.8 985.7 1168.7 1126.0 4.1 4.2 4.0 4.5 4.7 86.2 90.5 92.0 94.7 104.4 2319.6 2615.1 2876.0 2984.3 2937.0 309.0 355.5 363.50 402.7 509.0 5839.8 6225.9 6820.3 7463.5 7724.1 1.0 6.6 9.5 9.4 3.5

Source : ANRPC Secretariat

The average unit value of Chinese imports of SRs was higher at US$ 1.65 per kg compared to that of NR at US$ 1.32 per kg in 2005. During January-October 2006, the unit value of Chinese SR import stood at US $ 1.81 per kg compared to that of NR at US $ 1.91 per kg. In October 2006, the latest month for which data are available, unit value of Chinese SR import was marginally higher at US $ 1.90 compared to that of NR at US $ 1.86 per kg. The comparison between the import unit values of SR and NR in China has to be noted with caution as they comprise several types/grades (www.china.org.cn January 2007). NR Production Statistics on ANRPC NR production for the latest five years are presented in Table 4. In 2005 NR

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There are constraints in expanding NR production in the short-run, rubber being a perennial crop. The upper cut-off point depends on the extent of planted area, clone, age of the trees, exploitation techniques employed, availability of labour etc. Much of the short term potential to enhance rubber production in response to higher prices may have already been exploited at least in some of the member countries. Hence though 2005 recorded the highest NR price in the recent years the annual growth in NR production in the ANRPC region declined to 3.5 per cent compared to previous year’s growth of 9.4 per cent. NR Production Outlook ANRPC NR production in 2006 and 2007 would be around 8.11 and 8.39 million tonnes respectively. According to the ANRPC Secretariat estimates, world NR production would be around 9.20 and 9.51 million tonnes in 2006 and 2007 respectively. According to IRSG, world production of NR in 2006 and 2007 will be 9.26 and 9.71 million tonnes respectively (Rubber Industry Report, IRSG, January-February 2007).

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Table 5. NR Production projections (‘000 tonnes) Country India Indonesia Malaysia Papua New Guinea Sri Lanka Thailand Vietnam

2006 853 2367 1230 5

2007 874 2453 1232 5

2010 929 2708 1236 7

2015 988 3134 1253 -

2020 1107 3460 1185 -

112 3000 540

118 3130 580

124 3290 750

150 3910 825

185 4210 -

Major NR Consuming Countries

Source: ANRPC Secretariat NR Consumption Table 6 provides NR consumption growth rates in the world’s top 10 consuming countries in recent years. These countries together accounted for around 75 per cent of global NR consumption in 2005. Table 6. Annual growth in NR consumption during 2003-2006 (%) Country

2003

2004

2005

China USA Japan India Malaysia South Korea Thailand Brazil Germany France World

9.3 -2.9 4.7 5.5 3.2 2.1 7.3 9.5 5.4 30.1 4.9

22.3 6.0 11.5 3.9 -4.3 5.7 6.7 11.5 -6.9 -23.4 7.2

9.7 1.4 5.0 5.9 4.2 4.9 4.8 5.6 7.9 4.7

Jan-Oct 2006 over Jan-Oct 2005 7.1 -11.1 3.3 3.6 -2.9 -1.6 -0.6 -8.7 0.9 -11.2 -1.9

Source: Computed from data in IRSG Rubber Statistical Bulletin, January-February 2007 - Negligible Global NR consumption had declined by 0.7 per cent in 2001 over 2000 when global GDP registered a marginal growth of 2.4 per cent. In 2002, the world economy and NR consumption expanded by 3.0 per cent and 4.0 per cent respectively over 2001. In 2003, the global economy gained momentum with a GDP growth rate of 4.0 per cent over 2002 and NR consumption rose by 4.9 per cent. The world economy expanded by 5.1 per cent in 2004 and global NR consumption grew by 7.2 per cent. In 2005 world economy expanded by 4.8 per cent and global NR consumption rose by 4.7 per cent. Consumption of NR during January-October

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2006 marginally declined by 1.9 per cent compared to the same period in the previous year. During this period, elastomer consumption (NR and SR) increased by 2.0 per cent as SR consumption had increased by 4.9 per cent.

NR consumption in some major consuming countries and the underlying factors are discussed below. China: - The country has been on a sustained growth path backed by strong exports and domestic consumption during the recent years. In 2005, GDP registered a growth of 9.9 per cent. China’s measures to address overheating may not significantly impact its NR consumption as growth has not moderated. All the four quarters of 2006 recorded consistently high GDP growth rates of 10.4, 11.5, 10.6 and 10.4 per cent respectively and the annual growth was 10.7 per cent. During January-November 2006 vehicle production amounted to 6.68 million units, up by 26.1 per cent compared to the same period in the previous year (www.stats.gov.cn January 2007). The economy is projected to grow by 9.5 per cent in 2007 (Asian Development Outlook Update, ADB, September 2006). During JanuaryOctober 2006, NR consumption increased by 7.1 per cent over the same period in 2005. The share of NR in rubber imports which had declined from 53 per cent in Q1 to 48.1 per cent in Q2 because of the relatively higher price of NR recovered in Q3 to 55.5 per cent as the gap between NR and SR prices narrowed (Rubber Statistical Bulletin, IRSG, January-February 2007). USA: - During January-October 2006, NR and SR consumption dropped by 11.1 and 5.5 per cent respectively compared to the same period in the previous year (Rubber Statistical Bulletin, IRSG, January-February 2007). The Consumer Confidence Index of the US Conference Board which dipped below 100 in August had improved in September. In October it was 105.4. The index which was virtually unchanged in November improved in December to 109.0 (Consumer Confidence Index, The Conference Board, October 2006). The US Fed rate was raised to 5.25 per cent by June end, the highest level in more than five years (www.washingtonpost.com, 30 June 2006). From Q2 of 2006 investment weakened dragged down by the housing sector. The growth of 5.6 per cent recorded in Q1 could not be sustained and the growth rates in the subsequent quarters were 2.6, 2.0 and 2.2 per cent respectively. The growth of the economy would moderate in 2007

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with a projected GDP expansion of 2.4 per cent but would improve in 2008 with a growth at 2.7 per cent (OECD Economic Outlook, OECD, December 2006). Japan: - NR consumption grew by 5.0 per cent in 2005 and by 3.3 per cent during JanuaryOctober 2006 over the corresponding period in the previous year. Japan’s long anticipated economic recovery strengthened in the recent past with a GDP growth of 2.7 per cent in 2005, up from 2.3 per cent in 2004. The moderate growth in GDP of 1.9 per cent in 2006 is expected to continue with a projected growth of 2 per cent in 2007 and 2008 (OECD Economic Outlook, OECD, December 2006). South Korea: - NR consumption, which had increased by 5.7 and 4.9 per cent in 2004 and 2005 respectively declined by 1.6 per cent during January-October 2006. The economy had grown by 4.0 per cent in 2005. The first and second quarters of the year could record growth of only 1.2 and 0.8 per cent over the previous quarters mainly because of worsening terms of trade due to high oil prices and a steep decrease in construction investment. The growth projections for 2006 and 2007 have been revised downwards to 5.0 and 4.3 respectively (Quarterly Bulletin, Bank of Korea, June & September 2006 & World Economic Outlook, IMF, September 2006). France & Germany: - These two major NR consuming countries in the euro zone had recorded declines in NR consumption in 2004. In 2005 consumption of NR in France remained constant while there was an increase in Germany by 7.9 per cent. During January-October 2006 NR consumption in France declined by 11.2 per cent and that of Germany increased marginally by 0.9 per cent compared to the corresponding period in the previous year. France’s GDP growth had declined in 2005 to 1.2 per cent from 2.0 per cent in 2004 but the first two quarters of 2006 recorded growth rates of 0.5 and 1.2 per cent respectively over the previous quarters. In Q3 GDP remained static with zero growth and Q4 registered a growth rate of 0.6 per cent. The economy is projected to expand by 1.8 and 1.7 per cent in 2006 and 2007 respectively (Informations Rapide, National Institute for Statistics and Economic Studies, February 2007 & OECD Economic Outlook, OECD, December 2006). The growth in Germany also had decelerated in 2005 to 0.9 per cent from 1.6 per cent in 2004. In the first three quarters of 2006 the German economy grew by 0.7, 1.2 and 1.0 per cent over the previous quarters respectively. In Q4 the growth rate declined to 0.8 per cent. In 2006 the GDP growth would be 2.0 per cent and would decline to 1.7 per cent in 2007. 23

(Press Release, Federal Statistical Office, November 2006 & OECD Economic Outlook, OECD, December 2006). Brazil: - The growth in NR consumption has declined from 11.5 per cent in 2004 to 5.6 per cent in 2005. During January-October 2006 there was a decline in NR consumption by 8.7 per cent over the same period in 2005. The economy which grew by 4.9 per cent in 2004 could record a growth of only 2.3 per cent in 2005. However, industrial production indices (1992=100) grew from 141 in January 2006 to 161 in May 2006 indicating industrial expansion. Though the indices declined in the next two months a recovery reaching 168 was observed in August 2006. After remaining flat for the next three months the indices fell to 148 in December 2006. The economy is projected to grow by 3.6 and 4.0 per cent respectively in 2006 and 2007 (Monthly Bulletin of Bank of Brazil, February 2007 & World Economic Outlook, IMF, September 2006)). India: - NR consumption in 2005 increased by 5.9 per cent over the previous year and JanuaryOctober 2006 recorded a growth of 3.6 per cent over the corresponding period of the previous year. Indian economy had achieved notable growth of 9.0 and 9.2 per cent in the financial years ending March 2005 and 2006 respectively. The current financial year ending March 2007 is also expected to return a growth of 9.2 per cent supported by sustained industrial activities and impressive performance in the agricultural and services sectors. According to ADB the economy would grow by 7.8 per cent each in 2006 and 2007 (Economic Survey 2006-07, Government of India, February 2007 & Asian Development Outlook, ADB, September 2006). Malaysia: - NR consumption declined by around 4 per cent each in 2004 and 2005 and declined by 2.9 per cent during January-October 2006 compared to the same period in the previous year. The Malaysian economy grew at 5.3 per cent in 2005 compared to the previous year’s growth of 7.1 per cent. The four quarters of 2006 registered GDP growth rates of 5.5, 5.9, 5.8 and 5.7 per cent respectively supported by sustained growth in manufacturing and services sectors and strong performance on the agricultural front. According to ADB the economy would grow by 5.8 per cent in 2007 (Quarterly Bulletin Q4/2006, Bank Negara & Asian Development Outlook Update, ADB, September, 2006). Thailand: - The annual growth in NR consumption had declined from 6.7 per cent in 2004 to 4.8 per cent in 2005. During JanuaryANRPC Newsletter

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October 2006 NR consumption marginally declined by 0.6 per cent over the same period in the previous year. Irrespective of the restraints imposed on growth by the increase in oil prices and the impact of natural calamities - tsunami and drought – the economy grew by 4.5 per cent in 2005 supported by the rebounding agricultural sector and surging exports. The growth momentum was sustained in the first quarter of 2006 with a GDP expansion of 6.3 per cent. However GDP growth declined to 4.9 per cent in Q2. Q3 and Q4 recorded GDP growth rates of 4.7 and 4.2 per cent respectively and in the year 2006 the economy expanded by 5.0 per cent. The GDP growth projection was sharply revised down to 4.0 per cent each in 2007 by ADB because of the decline in government spending and other developments (www.nesdb.go.th, February 2007 & Asian Development Outlook Update, ADB, September 2006). NR Consumption Outlook The consumption of NR in the short term is mainly determined by global economic growth. The global economic recovery which built up momentum from H2 of 2003 had softened from Q2 of 2004 and then improved from mid-2005. Economic expansion in Developing Asia remains solid with sustained growth in China and India. According to ADB, developing Asia would grow by 7.7 per cent in 2006 irrespective of the mild slowdown elsewhere. However, growth in 2007 is projected to ease to 7.1 per cent because of the declining demand for Asian products from industrial countries. According to IMF the advanced countries would grow by 3.1 and 2.7 per cent in 2006 and 2007 respectively. The OECD region recorded a growth of 3.2 per cent in 2006 and the region is projected to grow by 2.5 and 2.7 per cent in 2007 and 2008 respectively. Projections indicate that the world economy would grow by 5.1 and 4.9 per cent in 2006 and 2007 respectively (Asian Development Outlook, ADB, September 2006; Press Briefing, OECD, December 2006 & World Economic Outlook Update, IMF, September 2006). The moderation in the growth of the US economy in the near past could be partly attributed to the cooling of the housing sector partly. Several analysts expect that the possible resurge in consumer spending from lower fuel prices decrease would compensate to some extent the slowdown in the housing sector. The growth performance of the large economies in the euro zone, Germany and France in the recent months was lower compared to the initial months of the year. Growth in Japan is moderate. The impact of a mild slowdown in

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economic activities in the industrial countries was reflected in the declining demand/prices of industrial raw materials from the third quarter of the year. The uncertainties in oil prices, rising interest rates, widening current account imbalances, depreciating US dollar, geo-political factors etc. are matters of concern. Middle East developments and unrest in Nigeria affected oil supply towards the middle of the year. The oil rigs damaged by the hurricanes in the US were reported to be in operation by the third quarter of the year. The oil supply and demand projections stand at 86.0 and 86.7 million barrels per day respectively in 2006. The abnormally warm temperatures in the US and throughout the northern hemisphere in Q4 reduced the demand for heating oil. The WTI crude oil price which averaged US $ 74.41 per barrel in July 2006 had declined to US$ 58.39 per barrel in October. Then the average WTI oil price moved up slightly in November and December to US $ 59.08 and US $ 61.96 per barrel respectively and the average for the year was US $ 66.02 per barrel (Oil Market Report, International Energy Agency, February 2007 & Short-Term Energy Outlook, Energy Information Administration, US, February 2007). According to the IRSG, NR consumption in 2006 amounted to 8.97 million tonnes. The NR consumption projections for 2007 and 2008 are 9.41 and 9.95 million tonnes respectively, marking annual growth rates of 4.9 and 5.7 per cent respectively. The consumption of NR is projected to increase to 10.51 million tonnes in 2009, an increase of 5.6 per cent (Rubber Industry Report, IRSG, January-February 2007). NR Market outlook The outlook for the world economy and major consuming regions indicates a mild slowdown in global economic activities in 2007. It could be short-lived as a relatively higher rate of growth is projected for 2008. On the supply side, the short-term potential to enhance production of NR may have been almost exploited. Further, the impact of the slowdown in rubber planting/ replanting from 1997 to 2002 would be felt in the market in the next few years. The NR market is constantly in the fear of tight supply concerns because of predictions of adverse climatic conditions and other factors. Oil prices could influence SR/NR input mix in product manufacturing, to a certain extent, depending on the relative prices of NR and SR. The oil supply and demand projections for 2007 are 88.4 and 88.5 million barrels per day respectively. The price projections for WTI oil in 2007 and 2008 are US$ 59.46 and US $ 62.58 per barrel respectively. The supply and price of

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oil could be highly influenced by geo-political factors (Oil Market Report, International Energy Agency, February 2007 & Short-Term Energy Outlook, Energy Information Administration, US, February 2007). According to the Secretariat’s projections, there was a small surplus of 232 thousand tonnes in 2006 between NR production and consumption. In 2007 there could be a marginal surplus of 102 thousand tonnes. However production of NR could be highly influenced by climatic and geo-political factors. As production and consumption of NR in 2007 are expected to be close, the market could be highly sensitive as in the previous year to seasonal, currency and speculative factors. There are reports of a slowdown in replanting to take advantage of the prevailing relatively higher NR prices in the major producing countries. On the other hand there is also a renewed interest in rubber planting. The net impact may be an increase in NR supply from the start of the next decade.

the WTO Secretariat. At the end of the implementation period of RTAs, the parties shall submit to the WTO a short written report on the realization of the liberalization commitments in the RTAs as originally notified. The Committee on Regional Trade Agreements (CRTA) and the Committee on Trade and Development (CTD) are instructed to implement the Transparency Mechanism. Vietnam to Join WTO in January 2007 Vietnam informed the WTO on 12 December 2006 that it had ratified its membership agreement. It would now become the WTO’s 150th member on 11 January 2007. The General Council had approved Vietnam’s membership on 7 November 2006. Vietnam was complimented for the remarkable efforts put into preparing for membership. WTO Trade Report Focuses on Subsidies

WTO CORNER Growing Role for Developing Countries Developing countries are playing a growing role in the WTO, in the Doha negotiations, in the dispute settlement process and in all facets of WTO activities, according to the annual report published by the WTO in December 2006. Currently the real dynamism in trade is found in the developing world, where Brazil, China, India, Malaysia, Mexico and Thailand all posted double digit growth in exports. Africa too has staked its claim to a bigger share of the pie by posting export growth in excess of 25 per cent in each of the past three years. The formation of groups like the G-90, G-33 and G-20 illustrates the role of developing countries in powerful collective bargaining. The new edition of the Annual Report presents an overview of the activities of the WTO from the latest Ministerial Conference to the work of the different committees and bodies, and also facts and figures to illustrate the functioning of the Organization. Transparency Mechanism for RTAs The General Council, on 14 December 2006, established on a provisional basis a new Transparency Mechanism for all regional trade agreements (RTAs) in accordance with Para 47 of the Doha Ministerial Declaration. Information on new RTAs and changes affecting the implementation of RTAs or the operation of already implemented RTAs shall be notified to

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The World Trade Report published by the WTO in July 2006 had focused on subsidies. Government subsidies can be useful instruments in correcting market failures and working towards social objectives but can also distort trade and provoke strong responses from trading partners. Many governments maintain extensive subsidy programmes at the national and sub-national levels, and invoke a multiplicity of objectives to justify the programmes. As subsidies can be trade distorting, WTO Member governments must notify the organization of any such support. Yet few governments fully meet their notification obligations under the WTO, contributing to a serious lack of information and transparency on the use and effect of subsidies. The Report estimates that 21 developed countries spent almost US$250 billion on subsidies, while all countries spent over US$300 billion. The average ratio of subsidies to GDP is lower in developing than developed countries, but large variations of the ratio can be found in both country groups. For a sample of 31 developing countries the average ratio of subsidies to GDP was 0.6 per cent, while the comparable figure for a sample of 22 developed countries was 1.4 per cent. WTO Documents Related to Rubber and Rubber Products Issued during JulyDecember 2006 1. Notification No. G/TBT/N/KOR/122 dated 30th October 2006 (06-5210) by the Republic of Korea on safety criteria on retreaded tyres. 2. Notification No.G/TBT/N/TPKM/36 dated 29th September 2006 (06-4646) by Taiwan on

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labelling requirements of shoes with soles made of rubber and others. 3. Notification No. G/TBT/N/KEN/69 dated 29th September 2006 (06-4574) by Kenya prescribing requirements and methods of sampling and test for rubber erasers for removing pencil writing, ink pen writing, ballpoint pen ink writing, typewriting, carbon copy characters and for drawing cleaning. 4. Notification No. G/TBT/N/KEN/56 dated 15th September 2006 (06-4415) by Kenya prescribing the requirements and test methods for intermediate super abrasion furnace carbon black used in rubber products. 5. Notification No. G/TBT/N/KEN/45 dated 24 August 2006 (06-4002) by Kenya specifying the requirements of flexible rubber hose for use in vehicles for the transport of liquefied petroleum gases. 6. Notification No. G/TBT/N/IND/20 dated 17 th July 2006 (06-3447) by India bringing production and import of automotive tyres and tubes under mandatory certification. For compliance of this requirement, all manufactures of these products, shall be required to obtain certification from Bureau of Indian Standards (BIS). 7. Communication No. WT/DS332/7 dated 22 December 2006 (06-6146) by Chairman of the Dispute Settlement Panel on Brazil’s measures affecting imports of retreaded tyres informing that its final report would be ready by April 2007. 8. Notification No. G/TBT/N/CAN/186 dated 13 December 2006 (06-5977) by Canada on motor vehicles which covers tyre and rim safety regulations in line with U.S.Federal Motor Vehicle Safety Standards No.110 and 120. 9. Notification No. G/TBT/N/COL/58/Add.2 dated 13 December 2006 (06-5985) by Columbia related to an amendment of technical and labelling regulations of new, retreaded, radial or non-radial pneumatic tyres. 10. Notification No. G/TBT/N/ECU/9/Add.1 dated 6 November 2006 (06-5334) by Ecuador related to technical regulations of domestically produced or imported pneumatic tyres.

OTHER REGIONAL AGREEMENTS ASEAN, India to Resume Talks The ASEAN and India agreed to resume stalled free trade talks, although several issues remain

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in dispute still. Negotiations to forge an FTA stalled after the dispute over India’s exclusion list of 1,414 products could not be settled. India submitted a revised list which reclassified products for tariff reduction over different timeframes and reduced items in the exclusion list to 560. The ASEAN appreciated India’s efforts but expressed dissatisfaction on the permanent exclusion of some products of interest to ASEAN, including ceramics, wooden furniture and agricultural products, and also the proposal to reduce tariffs on palm oil products over 16 years. The negotiations at the level of officials would proceed to liberalising trade in services and investment once issues related to trade in goods had been resolved. However no deadline for the completion of negotiations is fixed. India is keen to expand trade ties with ASEAN, but wants to protect its own sensitive sectors, such as agriculture and textiles which provide livelihoods to millions of people. Source: www.aseansec.org, August 2006 Asia-Pacific Trade Agreement The first Agreement on Trade Negotiations Among Developing Member Countries of the Economic and Social Commission of Asia and Pacific (ESCAP), known as the Bangkok Agreement, was signed in July 1975 under the auspices of ESCAP. The Ministerial Council Session held in November 2005 renamed it into Asia Pacific Trade Agreement (APTA). The Session also agreed that the results of the Third Round would be implemented as of 1 July 2006 pending completion of domestic approval and ratification procedures. Subsequently this date was postponed to 1 September 2006. A meeting of the Standing Committee of APTA held in November 2006 in Kolkata, India made an assessment of the Third Round Results. The Third Round of negotiations took place from October 2001 to April 2003 along with negotiations for a revised text to the Bangkok Agreement. At the end of the Third Round the Participating States had exchanged concessions on 4,270 products and an additional 587 products concessions were offered exclusively to least developed countries. This is a marked increase from the 1,721 products (plus 112 products for LDCs) on which concessions were offered before the Third Round. The average margin of preference (MOP) upon completion of the Third Round was 26.8 per cent compared with 32.2 per cent before the Second Round but the MOP offered as special concessions on products from LDCs almost doubled. Consolidated results showed that China offered concessions on the largest number of products

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followed by Korea and India. The margin of preference offered by China is the highest followed by Korea for both general and special products. Source: www.unescap.org, November 2006 Japan-Indonesia FTA Tokyo and Jakarta agreed on an overall framework for liberalizing bilateral trade, including Japanese autos and Indonesian natural gas and human resources, in November 2006. The move for an FTA came as Japan tries to secure a stable supply of natural gas, including liquefied natural gas, and Indonesia hopes to increase the competitiveness of its products in Japan. Indonesia also needs to attract foreign investors. The Japanese government had been pursuing FTAs in Southeast Asia. The accord with Indonesia would be Japan’s seventh; after pacts with Singapore, Mexico, the Philippines, Malaysia, Thailand and Chile. Under the two countries’ FTA framework, Indonesia would cut tariffs on about 90 percent of Japanese imports from the current level of roughly 30 percent, while Japan would lift tariffs on about 93 percent of Indonesian imports, which were set at around 70 percent. Tariffs on autos with engine displacements higher than 3 litres will be lifted by 2012, while those under this size will be reduced to 5 percent or less by 2016. Tariffs on Japanese steel used for automobiles and auto parts, electronics and construction machinery will be cut. Import tariffs on some electronic goods will also be eliminated. Japan for its part will scrap some 90 percent of the import tariffs on Indonesian industrial product imports and lift the tariffs on shrimp, tropical fruit, including bananas and pineapples, and forestry and marine products. Source: Japan Times, 29th November 2006 Asia Pacific Free Trade Area The Eighteenth APEC Ministerial Meeting was held in Hanoi, Vietnam on 15 and 16 November 2006. The theme of the Meeting was “Towards One Dynamic Community for Sustainable Development and Prosperity”. The status of RTAs/FTAs in the region was discussed and their implications were examined. The Meeting acknowledged the role of RTAs/FTAs in advancing trade liberalization and reducing trade transaction costs. The APEC Meeting also dealt with model measures on RTAs/FTAs. The model measures would be non-binding and voluntary and would not prejudice the positions of APEC members in their existing and future 27

RTAs/FTAs negotiations. The work on model measures would be continued. The need for greater economic integration in the Asia-Pacific region was reiterated but the Meeting noted that there were practical difficulties in negotiating a Free Trade Area of the Asia-Pacific. However, ways and means to promote regional economic integration including a Free Trade Area of the Asia-Pacific as a long term prospect would be studied. Source: www.apecsec.org.sg, December 2006 ASEAN Ministers Signed Six Accords Economic Ministers of the Association of Southeast Asian Nations (ASEAN) signed six agreements in Cebu, Philippines in December 2006. Of the six agreements signed, four documents were intra-ASEAN and two were ASEAN-China. The six agreements signed were the following: ASEAN Framework (Amendment) Agreement for the Integration of Priority Sectors; ASEAN Sectoral Integration (Amendment) Protocol for the Integration of Priority Sectors; Protocol to Implement the 5th Package of Commitments under the ASEAN Framework Agreement on Services (AFAS); ASEAN Mutual Recognition Agreement (MRA) on Nursing Services; Second Protocol to Amend the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and the People’s Republic of China; and, the Protocol to Amend the Trade in Goods in the Framework on Comprehensive Economic Cooperation between ASEAN and the People’s Republic of China. The first two intra ASEAN agreements reflect the amendments necessary to implement Phase 2 of the Priority Integration Sectors (PIS). The ministers also agreed to add the logistics sector as the 12th PIS to the 11 original PIS that include agro-based products, air travel, automotive products, information and communications technology, electronics, fisheries, healthcare, rubber-based products, textiles and apparel, tourism and wood based products. The original six ASEAN countries agreed to fully bring down to zero the tariffs and eliminate non- tariff barriers in the 12 sectors by 2007 and the four new members (Cambodia, Laos, Myanmar, and Vietnam) by 2012. The latter were given five years to fully integrate these sectors. Under the Common Effective Preferential Tariff Scheme, the regular tariff reduction program of AFTA, the original six member countries should attain full economic integration by 2010 while the four others by 2015. The third agreement relates to the consolidation of commitments made in previous

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packages under the AFAS and the General Agreement on Trade in Services in one document. The ASEAN MRA on Nursing Services is a Philippine initiative and is in support of the Bali Concord II for the completion of MRAs for qualifications in major professional services. The two other agreements with China were the amendment to the framework with the accession of the Philippines in the Early Harvest Program, and the amendment on trade in goods of the framework agreement between China and Vietnam. Source: Manila Bulletin, 10th December 2006

NATURAL RUBBER INDUSTRY IN PAPUA NEW GUINEA2 Natural rubber is one of the first perennial crops introduced by the erstwhile colonial administration in the then territories of Papua and New Guinea (now Papua New Guinea (PNG)) in early 20 th century on a plantation mode of production. It was mainly cultivated in the southern region comprising Central, Gulf and Oro provinces. Growth in rubber planted area was minimal until the second half of the 20th century. In 1960s the government through the erstwhile Department of Agriculture, Stock and Fisheries (DASF), now Department of Agriculture and Livestock (DAL)), crafted a policy to promote rubber as a smallholder crop in the villages in coastal provinces. At the time of independence in 1975, there were around 13,000 hectares of land under rubber cultivation but output was low at about 5000 tonnes per annum. Australia had been the main market for rubber from PNG under a sheltered marketing arrangement resulting from close historical ties between the two countries. The concept of rubber based resettlement scheme was introduced in 1970s under the Asian Development Bank (ADB) assistance package for integrated rural development and poverty alleviation programme in PNG. Under the ADB programme two agricultural development projects involving rubber cultivation were implemented in Gavien in East Sepik and in Cape Rodney in Central Province. Through the projects the government envisaged to modernize the rubber sector mainly by introducing budded planting materials and switching over from processing ribbed smoked sheet (RSS) to technically specified rubber (TSR), both of which have since become standard practices in PNG. This report provides a general overview of the natural rubber industry in PNG and a case

study of the Upulima Rubber Smallholdings Subdivision (URSSD) under the Cape Rodney Agricultural Development Project (CRADP). The data source comprises information collected through field visits undertaken in October 2004 and statistics available at the Secretariat.

Overview of PNG Rubber Industry Area under rubber Statistics of rubber planted area in the estate and smallholding sectors are presented in Table 1. Estates are defined as lands aggregating more than 20.23 hectares, planted with rubber. Lands aggregating less than 20.23 hectares, planted with rubber are classified as smallholdings. Area under rubber increased from 14,000 hectares in 1970 to 19,280 hectares in 2004. The share of smallholdings increased from 3.6 per cent in 1970 to 55.3 per cent in 1990, but later declined to 47.6 per cent in 2000. In 2004, the smallholding sector accounted for 50.7 per cent of total planted area. Currently, there is only one rubber estate in operation, Galley Reach Holdings Ltd., owned by Sipet, a Belgium company. The company has 5112 hectares of rubber plantations in Galley Reach in Central Province. Table 1. Area under rubber in estates and smallholdings (1970-2004)

Year 1970 1975 1980 1985 1990 1995 2000 2004

Area under rubber Estates Relative Small Relative (ha) share holdings share (%) (ha) (%) 13500 96.4 500 3.6 10100 78.3 2800 21.7 7500 60.5 4900 39.5 8848 54.5 7385 45.5 7504 44.7 9294 55.3 9555 52.4 8675 47.6 9555 52.4 8675 47.6 9499 49.3 9781 50.7

Total 14000 12900 12400 16233 16798 18230 18230 19280

Source : ANRPC Quarterly Rubber Statistical Bulletin (various issues) and Report of the Twenty-eighth Meeting of the ANRPC Executive Committee A major portion of the rubber area under smallholdings is in Central and Western provinces. Other provinces with smallholder rubber cultivation are Gulf, Oro, East Sepik, West Sepik, Manus and New Ireland. The

2 The views expressed are entirely the ANRPC Secretariat’s.

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national average size of a rubber holding was 1.67 ha. The average size of a holding in Central province was notably higher at 4.72 ha compared to 1.03 ha in Western province and 1.18 ha in the rest of the country.

smallholders in addition to its plantations. North Fly entirely processes smallholders’ rubber from Western Province. The companies directly export the processed PNGCR 10. Institutional set-up

Planting material The major clones planted are the Malaysian clones - RRIM 600 and PB varieties, and the Indonesian clone, GT1. In most of the places mixed planting had been done with these clones. NR Production and exports Out of the about 19000 hectares of mature rubber plantations only around 6000 hectares are being tapped because of constraints such as poor infrastructural facilities, low farm-gate price, non-availability of tapping accessories and lack of marketing outlets. The smallholding sector contributed around 50 per cent of NR production in 2004. Fig.1 shows the trends in NR exports from PNG from 1966 to 2005. The average annual exports of NR declined from 5,911 tonnes in the second half of 1960s to 5,007 tonnes in 1970s and further declined to 4,109 tonnes in 1980s. However, during 1990s average annual exports of NR marginally increased to 4,353 tonnes because of the relatively higher exports in 1995 and 1996 at 5,396 and 7,019 tonnes respectively, presumably responding to the then high NR prices. During 2005, the country exported 4,719 tonnes of NR.

The DAL is currently the lead government agency in charge of the functional responsibility for the development of rubber industry at the national level. In September 2006 the government established PNG Rubber Board which would serve as a conduit for the corporatization of the rubber industry as a parastatal entity. The Board would be institutionally mandated to be responsible for all matters related to the rubber sector at the national level. Upulima Rubber Smallholdings Sub-Division Upulima is one of the sub-divisions of smallholder blocks of rubber developed under the CRADP. It was funded by the ADB and the Government of PNG. The other sub-divisions where rubber smallholdings were developed under the CRADP are Cocolands, Manabo and Ianu which are located in the Abau district in Central Province. There are 265 smallholder blocks in the Upulima sub-division and the total area is above 1800 hectares. Generally, each block measures 7.5 hectares, comprising 4 hectares rubber, 3 hectares other crops and 0.5 hectare for homestead. Social services were also provided including a police station, health centre and a community school. Plantation development and upkeep

Processing and marketing During early 1980s, factories were established to process NR into TSR under the Papua New Guinea Classified Rubber (PNGCR) Scheme. Currently the entire rubber output is exported as PNGCR 10. There are four TSR factories in the country, viz., Cape Rodney, North Fly, Doa and Gavien. Currently, the factories at Doa in Central Province and North Fly in Western Province are in operation. Galley Reach procures rubber from

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Clearing and other pre-planting operations started in 1982 and planting of rubber was completed in 1985. The rubber blocks were mixed planted with RRIM 600, GT1 and PB varieties. Initial planting density was 470 plants per hectare. The development costs were entirely met by the Project. In 1995, the blocks were handed over to the designated settlers under a 99 year lease arrangement. The settlers, brought from different villages, were given training on tapping of rubber trees. Tapping Generally ½ S d/2 tapping system is followed. The tappers are mainly men but women also are showing an interest. Tapping task is around 500 trees and if tapping cannot be completed in morning hours the rest of the trees are tapped in the afternoon. In blocks where settlers reside

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in their holdings tapping is regularly undertaken and partial incidence of tapping panel dryness is observed. But in blocks where growers reside elsewhere tapping is not undertaken regularly and tapping panel dryness is not observed. The tapping intensity is reported to be influenced by a host of factors which include the location of the residence of the settler, social activities and cash requirements. Table 2. Targeted and actual cup lump production in URSSD 1995 to 2003 (tonnes) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003

Cup lump production Targeted Actual 50 10 300 226 400 387 500 481 500 471 500 280 500 398 500 466 750 791

Source: URSSD Field office, Upulima

Table 3. Monthly sales of cup lump from Upulima sub-division (tonnes) Month January February March April May June July August September October November December Total

2001 46 21 38 30 136 60 67 398

2002 23 35 81 57 42 90 70 68 466

2003 25 39 35 124 52 68 48 106 77 54 60 103 791

Source: URSSD Field Office, Upulima The month-wise sales of cup lump from the sub-division are presented in Table 3. The blank cells show months when the factory truck could not reach the sub-division. The pattern of monthly sales cannot be related directly to agroclimatic factors as tapping is mainly determined by other factors mentioned earlier.

Yield and production The targeted and actual production of cup lump in URSSD is shown in Table 2. Yield per ha in 2003 when production reached its highest was around 800 kg of cup lump per hectare. This is considerably lower compared to the relatively higher yield reported in some estates upto 1800 kg per ha.

Other crops The main crops being cultivated are pineapple, banana, cassava, sweet potato, taro, yam, sugar cane, ibica etc. The farming is done predominantly for subsistence purposes as market accessibility is limited. Concluding remarks

Processing and marketing The TSR processing factory, established under the Project at Moreguina to process rubber from all the four sub-divisions, was closed in 2001. Since then Galley Reach factory at Doa has been processing the cup lump from URSSD under a Memorandum of Understanding signed with the DAL. Cup lumps are collected and packed as 90 kg lots in plastic bags. The factory truck collects the cup lump bags once a week and the proceeds are credited to settlers’ accounts in BSP Bank in Port Moresby. However there were times when the truck could not reach the sub-division because of poor road conditions. In 2004, the average farm-gate price received by the growers averaged around 60 toea per kg of cup lump. During the 1995-2004 period the farm-gate price ranged from 48 to 63 toea per kg of cup lump.

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The CRADP covered institutional arrangements for processing and marketing of rubber and had taken into consideration the food requirements of the settlers and provided basic social necessities. The URSSD is a well-conceived model but there were implementation and follow-up issues. The model could be replicated with appropriate modifications in other places. PNG has tremendous potential to expand rubber cultivation in terms of availability of suitable land, congenial agro-climatic conditions and labour. Rubber cultivation could be used as a means to resettle villagers. Moreover, rubber plantations can also earn substantial revenue for the country. Schemes are being drawn up under the National Agricultural Development Plan (NADP) for the promotion of rubber cultivation in the country.

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COUNTRY PROFILE IN BRIEF: INDONESIA General Land Area

:

1,860,359.67 km2 (2005)

Climate

:

Tropical

Temperature

:

25.300C – 31.470C (2004)

Annual rainfall

:

497.20 mm – 996.60 mm (2003)

Population (million)

:

219.21 (2005)

Population growth rate (%)

:

1.34 / year (2005)

Economic and Trade Statistics

2003

2004

2005

Total workforce (million)

100.32

103.97

105.80

Unemployment rate (%)

9.50

9.86

10.26

a) Agriculture, Forestry and Fishing

46.26

43.32

44.04

b)

12.04

11.81

12.27

c) Services

10.74

11.22

11.14

d) Others

30.96

33.75

32.55

209.51

246.02

277.13

4.10

5.13

5.60

a) Agriculture, Forestry and Fishing

16.58

15.38

13.40

b)

24.65

28.34

28.06

c) Services

10.39

10.18

10.10

d) Others

48.38

46.10

48.44

930.37

1,097.80

1,224.51

Consumer price Index (%)

5.06

6.40

17.11

Current account balance (billion US$)

8.11

1.56

0.34

Employment by sector (%):

Manufacturing

GDP (current prices, billion US$) Real GDP Growth (%) Contribution to GDP by sector (%):

Manufacturing

Nominal GDP per capita (US$)

Source: Central Bureau of Statistics, Indonesia, 2005

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EXCHANGE RATE: 29TH DECEMBER 2006 US$1

=

44.13

Indian Rupee

8,964.24

Rupiah

3.530

Ringgit

3.080

Kina

1.534

Singapore Dollar

107.41 36.15 14,051.13

Sri Lankan Rupee Baht Dong

Source: www.exchangerate.com, December 2006

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