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COMMENTARY

A century of rubber trade in Singapore

Botanic Gardens director Henry Ridley
Botanic Gardens director Henry Ridley (left) perfected rubber tapping.

Seeded in Singapore: Rubber has uniquely deep roots in Singapore's commercial history compared with any other major global commodity. As the Rubber Trade Association of Singapore (RTAS) marks its 100th anniversary, we celebrate rubber's heritage in Singapore, from its humble beginnings as seedlings brought in from London to the benchmark Sicom derivative contracts used by the world's tyre makers today.

RUBBER exhibits unique physical and chemical properties unmatched by any material - it is flexible, resilient and waterproof. It is also very much Asian, with over 90 per cent of all global production of natural rubber coming from South-east Asia, China and India.

In Singapore, we can trace rubber's history to the Botanic Gardens, from which the first scientific director Henry Ridley pioneered commercial production in Malaya. Twenty-two rubber seedlings took root there in 1877, having originally been germinated in London's Kew Gardens from reputedly smuggled Brazilian seeds.

The planting of rubber became popular across the Malay peninsula once commercial opportunities in the commodity became clear, catalysed by the collapse of the coffee market. As a result, Singapore emerged as a hub for the rubber industry, supplying skilled labour and capital for processing rubber tapped in the region for export to the US, UK and other parts of Europe.

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Supporting services in banking, shipping and law developed to eventually define Singapore's significance as an international financial services centre in Asia. Over the years, industry groups such as the RTAS and the Singapore International Chamber of Commerce Rubber Association (SICCRA) helped promote an organised market. In this sense, rubber created the capital base from which Singapore's position as a merchant trading city blossomed.

Singapore as merchant hub

As global rubber trade flourished, the centre of gravity shifted from London to Singapore during the 1970s and 1980s. This success did not come easily; it was made possible by the early Chinese rubber dealers in Singapore who had the hunger and gumption to stake their claim in the industry against colonial ownership interests.

Today, Singapore has become the world's nerve centre for rubber trading, far from its days as a local entrepôt and processing centre. The nation's role in the industry has evolved into that of a merchant hub which bridges and synthesises the diverse interests across the whole value chain. This year marks 10 years since the former Singapore Commodity Exchange (Sicom) joined the Singapore Exchange (SGX) family. Our rubber derivative contracts now serve as a global bellwether, used by tyre makers to price their purchases of raw material from South-east Asia to West Africa.

Derivatives are integral to the proper functioning of the physical marketplace, allowing participants to benchmark prices and manage volatility. The automotive industry, in particular tyre makers as well as manufacturers of cars, heavy vehicles and even aircraft, all look to Sicom and Singapore. We even have a Rubber Industry Act, reflecting the deep roots in our nation's commercial history.

No discussion on industrial commodity markets is complete without understanding the role of China. As the world's largest producer and exporter of automobile tyres, the country is heavily dependent on rubber imports. Under its Belt and Road Initiative (BRI), China will invest in tyre manufacturing facilities along a network of overland and maritime routes, while at the same time seeking to secure more rubber supply.

The BRI has encouraged the world rubber industry to export technologies and share expertise with countries which are starting their own tyre manufacturing. For its part, Chinese rubber companies have seized the opportunity to go international and set up offshore production lines.

Pragmatic approach

China's pragmatic approach to partnership will be key to success in the ambitious BRI projects. In the case of rubber, Singapore offers deep sectoral knowledge and the ability to syndicate resources in financing, management expertise and technical capabilities. In recent years, synergies have been created through alliances between internationalising Chinese companies and Sicom members and participants, such as Sinochem International and Halcyon Agri, Hainan Rubber and R1 International, as well as HNA and CWT.

The Singapore government recently cited a "33-85" figure to illustrate the nation's close ties to the BRI: 33 per cent of all outward investments related to the initiative flows through Singapore, while 85 per cent of inbound investment makes its way to China through the city-state.

Singapore's neutral leadership role in the global rubber industry and SGX's connectivity to institutional market participants around the world are the cornerstones of Sicom's continued success as the fair and trusted platform for international price discovery.

Liquidity has grown with the support of leading rubber producers and traders, attracting participation from financial traders.

Looking ahead, the rubber industry will be working towards increasing the adoption of technology in physical trading, supply chain management and data analytics.

A digital transformation will go a long way to attract a new breed of young market and industry professionals, even as we honour the achievements of our rubber pioneers and their wider contributions to social and economic development in South-east Asia.

Flying cars may become an engineering reality, now that we are on the cusp of electrification and automated driving. But until such a time, rubber - whether for tyres or tubes - is poised to remain a key industrial commodity, and the industry anchored in Singapore will continue its vibrant and vital function in global commerce.

The writer is head of derivatives at the Singapore Exchange.