- Production drops 24% in 2014, international market also dips
Adverse weather conditions over the course of last year forced rubber production down 24% Year-on-Year (YoY) to its lowest levels since 2004 and placed fresh challenges on the industry.
Total production fell to 98.6 million kg, amounting to the third consecutive year of declining volumes, largely as a result of weak international demand, dry weather conditions in the first half of 2014 and heavy rains in 3Q14 which disrupted latex tapping.
Sheet rubber production, which accounts for nearly 50% of total production, fell 22.7% YoY to 48.5 million kg while latex crepe, which accounts for 12% of production, fell 23% YoY to 11.8 million kg.
According to analysis from the Central Bank of Sri Lanka, the shortfall in production combined with lowered international market prices resulted in domestic rubber product manufacturers placing greater emphasis on imported rubber.
The average price of natural rubber in the global market fell 30% YoY to $ 1,956 per metric tonne.
Consequently, rubber imports rose sharply from 11.1 million kg in 2013 up to 29.2 million kg in 2014 which reportedly forced domestic smallholders to slow tapping operations and reduce their share in total production. Reflecting international conditions, rubber prices at the Colombo Rubber Auction also declined to their lowest levels in 2014, with the sharpest drops in price being witnessed in ribbed smoked sheet 1, which fell 24.1% YoY, and latex crepe 1X and scrap crepe declined by 22% YoY and 22.4% YoY respectively.
Sri Lanka’s trend towards declining production also carried over to international natural rubber producers who also slowed production parallel to weaker global demand for natural rubber. Meanwhile, major consuming countries were reported to have capitalised on weak prices to accumulate large stockpiles.
Natural rubber from Asian producers, which caters to approximately 95% of total global demand, was estimated to have dropped 3% to 10.8 million metric tonnes.
The situation with natural rubber was further exacerbated by historically low crude oil prices which promoted cheaper production of synthetic rubber, a situation which has caused smallholders in major producing countries to switch over to other crops.