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ASIA FOCUS
Sri Trang is cashing in on the rubber boom by putting itself where the raw-material supply is
Walailak Keeratipipatpong
``Having operations in both Thailand and Indonesia is a significant advantage for us,'' Mr Kitichai notes. |
Workers check block rubber at Sri Trang Group's plant in Thung Song, Nakhon Si Thammarat. The group runs 20 plants to supply a variety of rubber products to the market. |
Among a handful of rubber exporters of Thailand, Sri Trang Group is confident it has a competitive edge over its rivals as it has an operation right where the supply is, in Indonesia. In the near future, Indonesia could become the world's largest production hub for block rubber, a product with an upward price trend that could influence the global market, says Kitichai Sincharoenkul, executive director of Sri Trang Agro-Industry Plc (STA), a member of Sri Trang Group.
To capitalise on the trend and the bright outlook of the rubber industry, the group plans to increase by 60% the capacity of rubber block at its operation in South Sumatra, PT Sri Trang Linga Indonesia Co, to 80,000 tonnes a year, from 50,000 tonnes currently.
''We will also conduct a survey for a possible new site, somewhere in Kalimantan, with an investment cost of about 400 million baht,'' Mr Kitichai said.
Sri Trang first took the plunge to invest in Indonesia four years ago by forming a venture to produce block rubber, a more constant-viscosity product that is largely used in many industries including vehicle tyres, replacing ribbed smoked rubber sheets (RSS).
Sri Trang is the fourth largest Thai investor in the country after the agro-industry conglomerate CP Group, the coal miner Banpu, and the cement, paper and petrochemical giant SCG Group.
''We have employed about 500 local workers and they get along well with our 10 Thai-Muslim staff from our companies in the Muslim southern provinces of Thailand,'' said Mr Kitichai.
The Indonesian government has a clear policy to promote the country as the top producer and exporter of rubber and palm oil over the next few years, he says.
The country is now the world's second largest rubber producer, with 2.5 million tonnes last year, lagging only Thailand which produces about three million to 3.2 million tonnes rubber per year.
Earlier this year, the Indonesia Rubber Association announced a plan to overtake Thailand by 2015, when production is forecast to reach 3.8 million tonnes. The ambitious goal is supported by new plantations, higher productivity and the assistance provided by the government to boost the country's status in the field.
Though Sri Trang has no rubber plantation in Indonesia, it can easily acquire the raw material from local producers to make block rubber for export. The operation in South Sumatra helped push total sales volume of STA to 700,000 tonnes last year, and it expects 15% growth this year.
The growth reflects persistently strong global demand, especially from China, which imports about 1.5 million tonnes of rubber products a year.
Getting close to the raw material source is among the three criteria for any company seeking to stay ahead of the competition. Apart from that, effective marketing and distribution networks and good products are also important, he said.
To achieve these goals, STA has set up a marketing company in Singapore to cover the rubber trade in the region, the hub of the world's major rubber producers and exporters which also include Malaysia.
Singapore is the trade centre of many commodities and the Singapore Commodity Exchange handles more than half of the world's rubber trade today, which stands at about 8.5 million to nine million tonnes. Of the total trade volume, three million tonnes are from Thailand, the largest exporter.
The office in Singapore allows STA to cover markets of all products _ rubber sheets, latex, and block rubber _ boosting its trade volume to surpass its own production.
''Having operations in both Thailand and Indonesia is a significant advantage for us,'' he notes.
STA, based in Trang in southern Thailand, is now among Thailand's top five rubber exporters, alongside Southland, Von Bundit, Thaitech, and Thai Hua Rubber.
According to Mr Kitichai, rubber production requires not only hard work and patience but also professionals. For instance, tapping latex can be done only before sunrise, while price volatility and market changes affect manufacturers.
The shift in demand to block rubber, or technically specified rubber (TSR), has forced many rubber-sheet manufacturers out of business in recent years, especially small and medium-scale companies. It calls for higher investment and more complex production processes that only large-scaled manufacturers can afford.
RSS3 (ribbed smoked sheet No. 3) is still being produced, but only for niche markets such as tyres for bulldozers and aircraft, which require higher proportions of natural rubber than synthetic product.
In Thailand, Sri Trang Group runs 20 rubber plants to supply a variety of products to the market. It also plans to invest about 400 million baht in a new plant in Nong Khai to capitalise on the government's policy to promote the rubber industry in the Northeast, in addition to the South, where plantation areas become limited due to the aggressive expansion of oil palm, an energy crop.
The company is not very keen about the upstream industry. Although it has its own plantations, it has secured a number of reliable raw material suppliers.
''We have only around 1,000 rai in Trang and Songkhla, which are considered a very small when compared with more than a million rai of other rubber companies,'' said Mr Kitichai.
STA's sales revenue this year is expected to rise by 20% to 60 billion baht, 60% of which will be from block rubber, and 20% each from latex and rubber sheets.
Sri Trang Group also generates about 7-8 billion baht in revenue from about nine billion rubber gloves, making it the country's biggest producer.
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