Old rubber gets new sheen in S'pore

Singapore

RUBBER production may have declined in Singapore, but the city-state continues to be at the forefront of the industry today: it trades the bulk of natural rubber in the world, and also sets the benchmark price for the commodity through the Singapore Exchange futures.

The sector, however, is now in the throes of change, with family-run firms giving way to new corporatised outfits in a trend that will only accelerate.

There are about 35 significant rubber companies in Singapore today including rubber producers and major buyers, according to trade promotion agency International Enterprise (IE) Singapore. These companies traded natural rubber worth US$15.3 billion last year, making up 7.3 per cent of Singapore's total trade turnover in agri-commodities.

While new players have entered the sector here in recent years, many are still family-run businesses. Confronted with succession problems and growing competition from regional players, the best days for them, though, may be over.

"One by one, these family outfits will just disappear," foresees Tan Koh Young, president of the Rubber Trade Association of Singapore, who predicts a transition in the sector to professionally-run firms. "It's the corporatisation of the rubber trade," he said.

One way firms could go about doing so is to list on an exchange. The initial public offering route, however, is closed for rubber companies - for now at least.

"It's no longer the era for commodities," said Mr Tan. "When you don't have the trading volume, it'll be tough."

Another is to hire outsiders to run the business, especially since the third or fourth generation of a family might not be interested in taking over a rubber trading business.

"It's not a glamorous trade," said Peter Tan, a board member of the association.

In Mr Tan Koh Young's view, rubber trading in future could be driven by multi-commodity traders such as the likes of Olam International and Noble Group. This is because one needs a trading platform, global reach, and financing capability. "There will be consolidation," he said.

Mr Tan speaks from personal experience. Not able to find anyone among the next generation to take over his rubber family business, he sold his Indonesian rubber processing factories to Singapore-listed Halcyon Agri in 2010. The younger generation in the family could not accept the smell in the rubber factories, and had other interests.

Eventually, rubber trading - the oldest commodity trading sector here - could disappear from Singapore altogether. If firms are able to obtain financing elsewhere, "one need not trade rubber in Singapore", said another board member Teddy Chua, of Eastland Produce. "You can trade it in Johor, anywhere."

Still, even as natural rubber traders struggle with low prices for the commodity in the past few years, another engine for the Singapore rubber sector has emerged in synthetic rubber.

More than S$3.5 billion of investments in synthetic rubber have been made on Jurong Island in the past three years, by the largest names in the sector, said the Economic Development Board (EDB).

Lanxess, for example, opened its butyl rubber plant in 2013, its largest plant investment ever in the world. The same year, Asahi Kasei Chemicals opened a new plant for solution polymerised sytrene-butadiene rubber (S-SBR). Sumitomo Chemical soon followed with its first S-SBR plant in Asia outside Japan, and ExxonMobil Chemical last year broke ground for its butyl rubber and hydrocarbon resin plants in Singapore.

Said EDB executive director Damian Chan: "We are riding on the megatrend of rising middle class and increased urban mobility. The growing affluence and aspirations would lead to an increasing demand for goods such as automobiles, and Singapore is well placed to capture this growth."

The synthetic rubber cluster is part of the Singapore's strategy to integrate existing petrochemical crackers with diversified, high value-added downstream industries, he added.

The Republic is expected to become the 12th largest producer of synthetic rubber globally by next year, with a total capacity of 450,000 tonnes, said IE Singapore assistant CEO Satvinder Singh. He added that the extensive network of buyers and sellers here creates an "effective and neutral marketplace" for global traders, including in synthetic rubber.

"IE Singapore is seeing an increasing number of traders who used to trade natural rubber begin to dabble in synthetic rubber," said Mr Singh. "They now offer two product types to customers so as to create value and improve efficiency. Some tyre majors have also started to procure and trade synthetic rubber in Singapore."

A third leg to support the rubber sector here is the rubber futures on SGX, for which trading volumes have risen tremendously since last year.

The exchange cleared contracts involving 2.45 million tonnes of rubber in 2014, up 42 per cent from 2013. The upward momentum seems set to continue for another year - in the first half of this year alone, the exchange has already cleared contracts involving 1.64 million tonnes of rubber.

The growth is a result of three factors: heightened price volatility in rubber; increased diversity among physical market participants; and market development efforts by SGX, said the exchange's head of commodities product management, Lily Chia.

As rubber prices fluctuate on news ranging from El Nino to demand shifts in China, rubber producers and physical traders have turned to the futures market as a means of hedging. According to Ms Chia, more than 75 per cent of the physical market is priced using SGX futures prices, making it useful for managing price risks.

Other established rubber contracts are traded on the Tokyo Commodity Exchange and Shanghai Futures Exchange, but these are deemed more speculative markets by the industry.

The physical rubber market has also become increasingly diversified in recent years to include European tyre manufacturers and tyre manufacturers from China and India, Ms Chia observed.

"The greater the diversification in market participation, the greater the value SGX brings as a central counterparty, as customers do not need to establish bilateral relationships in order to trade with new participants given that SGX is their central counterparty."

SGX, which gained the rubber futures products through its acquisition of Sicom in 2008, has also been "relentless" in its efforts to educate producers and consumers in the region by holding seminars and workshops, she added.

The exchange is currently in talks to be part of a South-east Asian rubber exchange that would include Thailand, Indonesia and Malaysia.

Meanwhile, the sector in Singapore - which has already transformed itself from being the birthplace of commercial rubber to a rubber processing and milling centre, to its present form as a trading hub - looks set to evolve further.

The government says it continues to support initiatives to spur the growth of the rubber industry, and to attract rubber players to site their operations out of Singapore.

These include anchoring the secretariat for the International Rubber Study Group, and events such as the World Rubber Week, which comprises activities covering different parts of the value chain.

Recognising the impending challenges in the sector, IE's Mr Singh said: "It is also important to groom the next generation leaders in the rubber trade. IE Singapore will collaborate with industry players and associations to develop talent initiatives that are unique to the rubber trade."

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