Sri Lanka rubber exports retains bounce on Coronavirus crisis
ECONOMYNEXT – Sri Lanka’s rubber sector has got a bounce from Coronavirus with glove output sold out, the the demand for solid tyres in construction and logistics sectors abroad would drive the rest of the demand, an official said.
Surge in Demand
With production starting from mid-April factories were operating between 10 to 40 percent of capacity, Sri Lanka saw a surge in demand once the factories opened.
“At this time, we are seeing a pent-up demand because factories have just opened up and are moving goods out,” Sri Lanka’s Export Development Board Chairman Prabash Subasinghe told an online forum by Advocata Institute, a Colombo-based think tank.
“So, for all the factories the priority right now is to get back into operation, some of them have been and some of them are getting back.”
Sri Lanka exports different types of rubber gloves and is also the largest exporter of solid rubber tyres in the world, Subasinghe said.
In 2019, Sri Lanka exported 890 million US dollars worth of rubber and rubber-based products.
“..[T]he good news (in gloves) is we are sold out for the entire year, we can’t supply the demand that is there,” Subasinghe said.
Medical gloves are among the most in demand products in the world at the moment.
Sri Lanka’s seafood and agriculture firms are seeing foreign demand but the apparel sector has been badly hit and many are unable to pay salaries.
But most of the tyre companies in Sri Lanka are owned by international brands such as Michelin and Continental, who are able to manage a crisis, Subasinghe said.
Subasinghe’s own firm Global Rubber, is in solid tyres. Firms in Sri Lanka is also the original equipment manufacturers for heavy vehicle makers in the West and Japan.
The big solid tyre brands have their own distribution network and there have been no talk of order cancellations and missed payments.
“In terms of payments, some of the companies in Sri Lanka are owned by large conglomerate, so there’s no real discussion about payments, we haven’t seen large cancellations, order books are still full so we are just trying to keep up with the demand,” he said.
Sri Lanka tyre makers supply material handling (such as forklifts), construction tyres and agricultural tyres.
He said agricultural tyre demand will remain, and construction will depend on how soon activities recover, but materials handling demand may fall due to a slowdown in retail and logistics.
Subasinghe is hopeful that construction and agricultural tyres will do well in the near future, at the same time predicts a fall in demand for material handling sector due to the slowdown in retail and logistics.
“I would say going forward the material handling sector would follow global logistics,” Subasinghe said.
“If global logistics reduce as we can see reducing, as people are not buying as much, things are not moving as much, there could be a possible downtrend in future.”
But many Western nations are talking about massive stimulus efforts.
“Governments are putting a lot of money into the system therefore construction sector is going to do well which means construction tyres will do well,” he said.
“Agriculture tyres, which are a new product for Sri Lanka will do exceptional well simply because of the demand food and food security has become one of the most important topics”.
“The other rubber items we export are rubber bands, rubber gaskets; things that are related to the automobile sector. I think there would be concerns.”
Up to now, prices were not going down for rubber products, but they may soften later.
“In rubber, up to now we have not seen a downward pricing trend but generally for products like what we do out of Sri Lanka,” Subasinghe said.
“In deep recessions, the prices generally go soft”.
However, raw rubber prices may also fall, as it tends to follow petroleum prices, which drives synthetic rubber.
“I think down the road the pricing would go down as the economy goes soft.”
Subasinghe said there was also a trend where some manufacturers wanted to move out of China. (Colombo/Apr27/2020-sb)