Commodities: Rubber Production Indonesia Expected to Rise in 2016
The Indonesian Rubber Board says Indonesia's rubber production is expected to reach 3.16 million tons in 2016, up 1.61 percent (y/y) from last year's realization. The board said rising output comes on the back of an increase in the size of Indonesia's rubber plantations and an increase in productivity at the existing plantations. Indonesia is the world's second-largest rubber producer (after Thailand) and therefore its output has a major impact on global rubber prices (about 85 percent of Indonesia's rubber production is exported abroad).
Aziz Pane, Head of the Indonesian Rubber Board, said the size of Indonesian rubber plantations rose from 3.62 million hectares in 2015 to 3.64 million hectares in 2016, while the rubber productivity of plantations rose from 1.04 ton per hectare to 1.05 ton per hectare over the same period.
Regarding rubber prices, Pane says he expects the continuation of volatile prices in the foreseeable future. Despite rising rubber prices in recent months, these prices cannot maintain their growth momentum amid sluggish crude oil prices. In March 2016 global rubber prices started to rise - after touching seven-year lows previously - in line with rising crude oil prices. Moreover, the world's top rubber producing countries (Thailand, Indonesia and Malaysia) agreed to cut back on rubber output between March and August 2016 (a pact named the Agreed Export Tonnage Scheme) in an effort to raise international prices, while also attempting to boost domestic rubber consumption. In April 2016 rubber price were up by 16 percent. However, the Malaysian Rubber Board recently stated that a strong rebound in natural rubber prices is unlikely to occur without a surge in global economic growth.
Indonesia's downstream rubber industry remains under-developed. Only 600,000 tons of natural rubber output is consumed domestically by the country's downstream rubber industry, while the remainder is exported. As such, development of the downstream industry in Indonesia could lead to a significant rise of international rubber prices.
Meanwhile, Indonesian Agriculture Minister Amran Sulaiman said the government is eager to support the nation's rubber farmers by absorbing part of their output. For example, rubber can be used for rubberized asphalt concrete (RAC) in the government-led infrastructure projects. The government has ambitious plans to develop toll roads across Sumatra, Java and Kalimantan. Most of Indonesia's rubber production - approximately 80 percent - is produced by smallholder farmers (government and large private estates play a minor role).
Indonesian Rubber Production & Export:
| 2008 | 2009 | 2010 | 2011 | 2012 |
2013 | 2014 | 2015 | 2016¹ | |
| Production (in mln tons) |
2.75 | 2.44 | 2.73 | 3.09 | 3.04 | 3.20 | 3.18 | 3.11 | 3.16 |
| Export (in mln tons) |
2.30 | 1.99 | 2.20 | 2.55 | 2.80 | 2.70 | 2.60 | 2.30¹ |
¹ indicates a forecast
Sources: Association of Natural Rubber Producing Countries, Indonesian Rubber Association (Gapkindo), and Food and Agriculture Organization of the United Nations