#11950-2020 Stability 7 ANK OF SRI LANKA Sustainability Shared Prosperity ශ්‍රී ලංකා මහ බැංකුව WVPTVHINES இலங்கை Work In Progress Study Series - Winning Industries ERD-SS-WI 10/01/2021 Rubber and Rubber Products Real Sector Division - Economic Research Department Central Bank of Sri Lanka This study was conducted by Mrs. K K Subasinghe and Mr. H K K L Nandasena who were serving in the Economic Research Department. If you have any comments with regard to this presentation, please email the Real Sector Division on [email protected].#2Content 1950-2020 Stability Sustainability Chad Prosperity •Industry Background •Industry Status - Sri Lanka •Industry Potential • Challenges to Cultivation of Natural Rubber •Measures to develop Rubber Export Market •Way Forward Economic Research Department Central Bank of Sri Lanka 2#3Industry Background 3#4Industry Background Sri Lanka prides itself in manufacturing rubber in both raw & value added forms. Rubber Based Products Industrial products like solid tyres, Pneumatic tyres, tubes, hoses, auto parts, industrial components Extrusion products like latex products such as medical, industrial and household gloves, rubber bands, beadings Raw Rubber •Ribbed Smoked Sheets Rubber •Latex crepe •Centrifuged latex •Technically Specified Natural Rubber • General rubber products like floor mats, carpets, sports goods, footwear, hot water bottles and related components As per the World Rubber Industry Outlook (WRIO), the global rubber demand is expected to rebound in 2021 (7.9%) driven by recovery in the tyre sector (6.9%) and growth in the non-tyre sector (9.3%). 1950-2020 Stability Sustainability Shed Prosperity 70 4#5Industry Status - Sri Lanka 5#6Industry Status - Sri Lanka 1950-2020 Stability Sustainability Chad Prosperity Started in 1876 at the Henerathgoda Botanical Gardens in Gampaha. Has a lifespan of 25 - 30 years, while harvesting commences 7 years from planting. The traditional rubber growing areas of Sri Lanka is located in the Wet Zone across a land extent of 127,500 hectares Global industry growing annually at 4-6% Manufactures a number of value- added rubber products by processing raw rubber. Rubber sector is the third largest export earner One of the leading Natural Rubber producers in the world. With the introduction of a series of new rubber clones by RRI, that can withstand the dry weather, dry non-traditional regions of Sri Lanka too have become locations of interest Economic Research Department Central Bank of Sri Lanka 6#7Industry Status - Sri Lanka Rubber Products Sri Lankan Rubber products manufacturing sector is heavily weighted towards large manufacturing enterprises that account for 90-95% of the industry turnover generated by approximately 10 companies. Another 30 - 50 medium sized firms account for around 3-6% of the turnover while all remaining micro, small and medium firms generate less than 3% of the turnover. ⚫ There are over 300 micro and small enterprises registered government institutions. with different • Key Players in the Sector Camso Loadstar (Pvt) Ltd Ansell Lanka (Pvt) Ltd Trelleborg Lanka (Pvt) Ltd Industrial Clothing's Ltd Eu Retec (Pvt) Ltd Lalan Rubbers (Pvt) Ltd Global Rubber Industries (Pvt) Ltd Samson Rubber Products (Pvt) Ltd. Dipped Products PLC Marangoni Industrial Tyres Lanka (Pvt) Ltd 1950-2020 Stability Sustainability Chad Prosperity 7#8Industry Status - Sri Lanka Rubber exporters have specialised in the sustainable production of niche rubber products: Solid tyres & Pneumatic tyres • Rubber Gloves . • Rubber apparel including all types of personal protective equipment • Automotive components • Rubber industrial parts: gaskets, washers, ropes, and seals Rubber footwear and footwear accessories: rubber soles • Natural latex bedding material including latex foam mattress core, pillows, and sheets • Engineered rubber and bonded rubber products • . Rubber accessories: rubber bands, hot water bottles, grilles, diffusers, horse pipes, connectors and ductwork Rubber flooring solutions: rubber tiles, carpets and mats Rubber-based sports and fitness equipment and accessories 1950-2020 Stability Sustainability Prosp 8#91950-2020 Stability Sustainability Chad Prosperity Industry Status - Sri Lanka USD Mn 2019 Total Export - US$11.9 bn Rubber Exports - below US$1 bn Exports of Rubber & Rubber Finished Products Composition of Rubber Exports -2019 1,200 12% 1,000 8% 800 10% 10% 9% 8% 8% 7% 8% 8% 7% 8% Natural Rubber 10% Rubber Products Natural Rubber 3% 600 6% 400 4% Share of Total Exports 200 2% 731 1,091 984 959 935 787 801 874 907 890 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Rubber Exports Share of Total Exports Source: EDB, Central Bank of Sri Lanka Rubber Products, 97% Source: EDB, Central Bank of Sri Lanka Economic Research Department Central Bank of Sri Lanka 9#101950-2020 Stability Sustainability Chad Prosperity USD Mn Industry Status - Sri Lanka Export performance of Rubber Products 2010 - 2019 600 500 400 300 200 100 USA Germany Belgium 52 Italy 41 France 36 Canada 34 UK 26 Australia 23 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Brazil 22 Rubber Tyres & Tubes India 21 Rubber Gloves Gaskets, Washers, Seals etc. of Hard Rubber Other Rubber Products Source: EDB Major Export Markets of Rubber Products - 2019 (values in USD Mn) 110 273 50 50 100 150 200 250 300 Source: EDB 10#11Industry Potential 11#12Industry Potential . Availability of premium quality natural rubber latex Sri Lanka is a leading manufacturer of the best quality latex crepe rubber in the world and also the largest exporter of latex crepe to the global market Specialization of niche products for global markets Largest exporter of industrial solid tires and the fifth largest exporter of latex gloves to the world 1950-2020 Stability Sustainability Shard Prospe Sustainable production practices Complies with global labour standards and ethical practices ✓ Main income sources for Sri Lankan rural women ✓ Environmental sustainability State-sponsored incentives to exporters and buyers Budget 2021 highlights . Consistent tax policy for next 5 years 10-year tax holiday on $ 10 million investment Proposals to establish new investment zones FDI agreement worth of USD 300mn from China to build a tyre plant in Hambantota port 12#1313 Industry Potential: Tyres ➤ Sri Lanka exports approximately USD 500 mn worth of tyres ➤ Tyre sector alone contributes to nearly 4% of total merchandise exports Solid Tyres . . • Sri Lanka is the largest solid tyre manufacturer in the world catering to nearly 25% of the global demand Plays an important role in agriculture, industrial and logistic sectors Used for forklift trucks, airport vehicles, heavy-duty transport vehicles, platform trucks, and other industrial vehicles USA and EU countries are the main buyers Manufacturing solid tyres for world renowned heavy vehicle brands Toyota, Linde, Fenwick, Jungheinrich, Hyster, Yale, Crown, Komatsu, Liebherr, Sennebogen and Caterpillar 1950-2020 Stability Sustainability Chad Prosperity#14Industry Potential: Tyres Pneumatic Tyres • ● • • Global market demand is estimated to reach about USD $287.5 billion by the end of 2020 Latin America, the Middle East and Africa being the largest emerging markets Used for cars, bicycles, motorcycles, buses, trucks, and heavy equipment with the exception of aircraft tyres Top pneumatic tyre manufacturers in the world are Japan, China, Korea and India Sri Lanka exports pneumatic tyres to the USA, Germany, Canada and Mexico 1950-2020 Stability Sustainability Chad Prosperity 14#15Challenges in Tyre Production Shortage of skilled labour ■ Low productivity ■ Trained people migrate to other industries • Policy inconsistency • Volatility of Raw Rubber Prices Country Tyres (kg) per man-hour China India 29 21 15 Sri Lanka 11 Source: Business Today • • • Weak linkage between the private sector and Government International linkages and expertise ■ International linkages like joint ventures are required to upgrade the production processes, adapt and improve products, and invest in R&D and innovation with the aim of enhancing competitiveness to increase global market share Intense competition from developed countries 1950-2020 Stability Sustainability Chad Prosperity#16Industry Potential: Rubber Gloves ■ Sri Lanka glove production fulfills over 5% of global demand ■ Produces a variety of gloves from household gloves, to industrial and surgical gloves ■ Used primarily in the medical, dental, industrial, pharmaceutical and food handling sectors Largely manufactured from natural rubber latex produced in Sri Lanka 1950-2020 Stability Sustainability Chad Prosperity 16#17Challenges in Production of Rubber gloves Strong demand for nitrile gloves Strong demand for nitrile gloves are projected to overtake latex rubber gloves in terms of market share, owing to the price competitiveness of nitrile gloves as they are a premium substitute for latex powder-free gloves. ■ Continuous innovation Medical gloves continuously evolve to meet market demands owing to the rapid innovations introduced in the medical field ■ Health hazards Main obstacles to the exclusive use of natural rubber in the production of gloves is the allergic reactions to natural rubber latex, which triggered the popularity of nitrile latex gloves in European and North American markets ■ Government support Some degree of support is required especially in marketing and technology given the intense competition Financial constraints, high labour turnover, low motivation among employees, lack of human capital building 1950-2020 Stability Sustainability Shed Prosperity 17#18Industry Potential: Latex Bedding Growing demand for 100% natural latex pillows, as well as latex mattress cores and toppers. More durable, consistent and homogenous latex with high levels of comfort and softness ■ The most recent development is the introduction of Organic Natural Rubber Latex Mattresses, that contains no chemical or synthetic ingredients 1950-2020 Stability Sustainability Chad Prosperity 18#19Challenges in Production of Latex Bedding Huge extent of rubber required to meet container loads To manufacture one 'queen size' natural latex mattress, it requires a daily collection of latex from over 2000 rubber trees • Location of the plant to the factory • Close proximity in location of the plant to the factory ensures freshness of the latex Certifications required from global bodies ECO LGA, Oeko Tex, STROKE, ABC and SATRA • Mass market awareness for a new product Export trends are changing There was a big market for synthetic latex in China, but now consumer interest in 'green' goods is growing worldwide 1950-2020 Stability Sustainability Chad Prosperity 19#20Industry Potential: Natural Rubber • Sri Lanka produces almost all types of raw NR; o Ribbed smoked sheet rubber (RSS Rubber) o Crepe rubber o Technically Specified Rubber (TSR) o Latex concentrates 。 Specialty rubber • RSS is the major type of raw rubber produced in the country Crepe rubber leads exports with a share of 84% of the NR exports while less than 2% of RSS produced in Sri Lanka is exported 1950-2020 Stability Sustainability Chad Prosperity 20#21Challenges to Cultivation of Natural Rubber • . . 1950-2020 Stability Sustainability Chad Prosperity Declining raw rubber production creates shortages of rubber o Fluctuations in production due to weather changes o Land is undergoing gradual diversification for more profitable use Unattractive prices o Compel rubber farmers to abandon farms ○ National production volumes will decline Over-tapping is a problem o Other countries tap once in five days 。 Daily tapping in Sri Lanka Weak linkage with government authorities Workforce development Lack of Value Addition and innovation Inadequacy of Polymer Science graduates Insufficient support from the financial system Inconsistencies in policies/practices followed by rubber producers Tax concerns & Strict compliance with environmental regulations 21#22Way Forward Strengthening domestic production for exports • Move towards Non-traditional regions • Convert underutilized lands into rubber plantations 1950-2020 Stability Sustainability Chad Prosperity • Fair prices for rubber producers • Backward integration ✓ Government policies to attract foreign direct investments • • Changes to levies and duties to promote the value-added product manufacturing Trade agreements & bilateral arrangements Relax restrictions on imports of input material Development of Infrastructure Expand the contribution of the diplomatic missions for economic diplomacy Maintain a buffer stock to curb fluctuations ✓ Improve research and product development facilities • Expand testing facilities at research institutions and/or universities Launch a product and process development centre Improve HR in R&D, product development and standardization Attract investments on R&D 23#23Way Forward ✓ Produce better quality products • · · Quality awareness programmes Develop product infrastructure Accreditation body to assess quality More testing and technological knowhow ✓ Workforce development to improve productivity . Tapper productivity • Vocational institutes • Introducing new programs in tertiary level education ✓ Strengthen the marketing and promotional campaigns ⚫ international market research and trade promotion entity • • · • Platform which connects foreign buyers and Sri Lankan exporters Online export promotions International trade fairs & exhibitions Branding ✓ International linkages . Joint ventures with top international brands: e.g: Continental tyre 1950-2020 Stability Sustainability Chad Prosperity 24#24Thank You!