Sri Lanka’s rubber export industry is set to experience a rise in demand from Europe this October, as European buyers resume operations after the summer break. The strengthening of U.S. export earnings is also expected to provide a boost. However, industry experts have flagged several challenges that could impact the growth of rubber exports in the coming months.
Increase in European Orders
The rubber sector in Sri Lanka is preparing for an increase in order volumes from Europe as markets in the region become more active again. According to reports from Forbes and Walker Commodity Brokers, new orders are expected to come in over the next few months. This is welcome news for Sri Lanka, a key exporter of rubber to the European Union (EU) and the U.S. The strengthening demand from the U.S. is also a positive sign for the industry.
However, the report warns of a potential slowdown in U.S. orders due to the upcoming presidential elections. Major political events like this can often impact demand and create short-term fluctuations in the market, making it important for the Sri Lankan rubber industry to be prepared for potential shifts in U.S. demand.
Challenges Facing Sri Lanka’s Rubber Industry
Despite the positive outlook for exports, Sri Lanka’s rubber industry is dealing with a number of significant challenges. The Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) has raised concerns about the rising cost of natural rubber. This could drive global markets to favor synthetic rubber alternatives, which may impact the competitiveness of Sri Lankan rubber on the world stage.
In addition to rising raw material costs, the rubber sector is also struggling with high energy and water tariffs, labor shortages, and the fluctuating value of the Sri Lankan rupee. These challenges make it harder for the industry to maintain its current production levels and compete effectively in the global market. Furthermore, there has been a shortage of raw rubber materials, exacerbating the issue.
Compliance with EU Deforestation Regulation
One of the most pressing concerns for Sri Lanka’s rubber industry is the upcoming European Union Deforestation Regulation (EUDR) compliance deadline. The regulation, set to take effect by the end of 2024, requires all rubber exports to the EU to meet strict deforestation-free standards. Over 75% of Sri Lanka’s rubber production comes from smallholders, who are finding it difficult to implement the necessary changes to meet these new regulations.
Failure to comply with the EUDR could result in Sri Lanka losing access to one of its most important markets – the EU. Forbes and Walker Commodity Brokers highlighted that without compliance, Sri Lanka would be unable to export rubber and latex-based products to European countries, a potentially devastating blow to the industry.
Meeting these regulations requires significant investment in new systems and processes to ensure that rubber production does not contribute to deforestation. However, many smallholder producers are facing resource constraints, making it difficult to achieve compliance in time for the deadline.
Price Trends and Market Dynamics
In recent weeks, there has been some positive movement in rubber prices, particularly for latex crepe, a key product in Sri Lanka’s rubber export market. The average price for Latex Crepe 1X has risen by Rs. 76.25 per kilogram, while No. 1 crepe saw an increase of Rs. 64. Other crepe varieties also experienced price gains, with No. 2 crepe increasing by Rs. 41.75 and No. 3 crepe rising by Rs. 28.75. However, No. 4 crepe prices dropped slightly, by Rs. 16.25.
Demand for latex crepe has remained strong, which is a positive sign for Sri Lankan exporters. Scrap crepe, another form of rubber product, also saw an improvement in prices, reflecting steady demand in the market.
On the other hand, the Ribbed Smoked Sheet (RSS) market has seen lower volumes at auctions. Many smallholders who previously produced RSS have shifted their focus to supplying latex to centrifuge plants, which is currently more profitable. The average price for RSS1 stood at Rs. 752 per kilogram, though volumes traded in the market have been relatively low.
The Road Ahead for Sri Lanka’s Rubber Exports
As the rubber export market prepares for a surge in demand from Europe, Sri Lankan producers are balancing a range of factors that could influence the sector’s overall success. The potential growth in European orders is a positive development, but the industry must remain cautious of external factors like U.S. elections and rising natural rubber prices.
Perhaps the most critical issue is the impending EU deforestation regulations. Smallholders, who are responsible for the majority of Sri Lanka’s rubber production, will need support to meet these standards. Without compliance, the sector risks losing access to one of its largest markets, which could have long-lasting consequences for the industry.
To overcome these challenges, the rubber industry in Sri Lanka must focus on several key areas. First, addressing the shortage of raw materials and finding ways to reduce the impact of high energy and labor costs will be vital. Second, the industry needs to invest in sustainable practices that align with the EUDR, ensuring that Sri Lanka remains competitive in the European market. Finally, diversifying its export base and reducing reliance on specific markets, like the U.S., will help stabilize the sector against external economic factors.
Conclusion
The future of Sri Lanka’s rubber export industry looks promising, with a potential rise in European orders. However, the sector faces significant challenges, including rising raw material costs, labor shortages, and the looming EUDR compliance deadline. The rubber industry will need to innovate and invest in sustainability to maintain its competitive edge and continue its growth in global markets.
By addressing these challenges head-on and preparing for potential market fluctuations, Sri Lanka can strengthen its position as a leading rubber exporter and continue to benefit from strong demand in Europe and beyond.
