What will drive the Vietnam rubber industry?

Increasing rubber prices

Since the beginning of 2024, rubber prices have increased sharply due to extreme weather conditions, especially prolonged high temperatures and dry weather caused by the El Niño phenomenon in the main production areas in Southeast Asia. These have led to insufficient rainfall, thereby limit ing rubber production. Although the weather condition has improved recently, Typhoon Yagi in September has made rubber tapping difficult, delaying the expected increase in supply during the peak harvest season and causing rubber prices to jump to the highest level this year.  

In 9M24, the increase in rubber prices supported Vietnam's rubber export prices. At the end of September 2024, RSS3 rubber price reached 418 JPY/kg 83% yoy and TSR20 rubber price reached 212 USD/kg 55% yoy. Vietnam's export rubber price reached 1,697 USD/ton 30% yoy in September and 1,588 USD/ton 19% yoy in 9M24. Thereby, Vietnam's rubber exports increased by 12% yoy despite a 6% yoy decrease in volume. MBS forecasts Vietnam's rubber export prices to remain high until the end of 2024 thanks to (1) supply shortage (2) higher demand due to China implementing many policies to support its economy (3) reduced rubber acreage.

Rubber prices in uptrend

For supply, The Association of Natural Rubber Producing Countries (ANRPC) has continued to raise its forecast for a natural rubber supply shortage this year and warned that the situation could last until 2028. ANRPC has further lowered its forecast for natural rubber supply in 2024 from 14.54 million tons to 14.50 million tons due to the impact of (1) unfavorable weather conditions during the transition from El Nino to La Nina (2) widespread leaf fall disease affecting rubber production and quality (3) rubber growers in many countries such as Thailand, Indonesia and Malaysia are not ready to expand their planting areas again. As a result, in 2024, world rubber production is projected to increase slightly by 0.4% yoy and ANRPC’s rubber production is forecast to decrease by -0.6% yoy.

For demand, ANRPC also adjusted up its forecast for global rubber demand this year from 15.67 million tons to 15.75 million tons, expecting China's rubber consumption to gradually recover as the country is implementing many policies to support its economy (China’s PBOC cutting the RRR by 0.5% and lowering the 7-day repo rate by 0.2% to 1.5%). ANRPC forecasts global rubber consumption to grow rapidly to 2.3% in 2024.

Leverage from rubber land conversion

Many countries with large rubber supplies have policies to limit  output; cooperate in managing supply between countries to balance the market. Thailand, accounting for 33% of world rubber output, has reduced the area of land for rubber cultivation in the next 20 years. Indonesia - ranked 2nd in rubber exports in the world - tends to convert rubber land to grow palm oil and other agricultural products with higher economic value.

Vietnam converts rubber land to industrial land; typically, GVR has been approved to convert more than 23,000 hectares of land, PHR plans to convert 10,869 hectares of land; DPR converts 1,621 hectares of land;... as industrial land brings higher economic efficiency than rubber land. MBS believes that rubber land conversion would support longterm rubber prices.

Rising oil prices push up rubber prices

Oil prices have an indirect impact on natural rubber prices through synthetic rubber prices, as oil is the raw material for synthetic rubber production. According to the US Energy Information Administration, oil prices are forecast to reach USD 83-84/barrel in 2024-25 due to the escalating conflicts in the Middle East. MBS expects oil prices to maintain upward momentum, supporting rubber prices in the coming time.