Highlights

• Vietnam marks 25% rise in export volume and 23% in value MoM in May 2023

• During January-May 2023, Vietnam exports 580,000 tons of rubber

• VRG reports reduction in inventory by half in five months

Reversing losses suffered in the first four months of 2023, Vietnam registered positive growth in rubber exports for both volume and value in May 2023.

Vietnamese rubber exports in May 2023 amounted to 110,000 tons valued at US$149 million, which marks a 25% rise in volume and a 23% rise in value month-on-month. The escalating Chinese imports driven up by an increased economic activity is the main contributor to such a growth. Compared to May 2022, the exports in May 2023, however, decreased by 3.6% in volume and 23.4% in value.

The average rubber export price in May 2023 was US$1,358/ton, down 2.2% compared to April 2023 and down 20.5% against May 2022. Such a downward price trend is reflective of the pricing pressure other regional producers were facing.

During the five-month period from January-May 2023, Vietnam exported 580,000 tons of rubber, worth US$803 million, down 3.3% in volume and 23.7% in value year-on-year. Vietnam mainly exports a mixture of natural and synthetic rubber. Mixture rubber with HS code 400280 constitutes around 67% of the country's total rubber exports.

Vietnam’s share of exports in other types of rubber like RSS1, SVR CV40 and regenerated rubber went up during January-May 2023 YoY. Vietnamese rubber exports are highly dependent on the Chinese market. Over 99% of the total mixed natural and synthetic rubber exported was destined for China. Only 15% of the total Vietnamese rubber production goes into domestic consumption.

Reflecting the improved sentiment in the Vietnamese rubber sector, the state-controlled Vietnam Rubber Group (VRG) has reported a significant reduction in its inventory from 80,000 tons at the end of 2022 to 40,000 tons by the end of May 2023.

VRG is understood to be having an impression that only from the beginning of next year will rubber prices have an upward price movement. Their expectation is that the current year will unlikely return to a favourable trend, with the global outlook likely to turn positive next year.

Domestically, Vietnam is battling power shortages in its northern region. The State Bank of Vietnam has cut key interest rates four times this year in a move to spur the economy.

Flurry of issues cast shadow over various firms

Even though May 2023 offered an optimistic outlook for the Vietnamese rubber sector, the slump during the previous months has seriously affected the health of the Vietnamese rubber sector. The sector continues to face a host of issues, including global headwinds and inflationary pressures.

The major constraint to the firms is in the form of adequate capital inflow. Many reported delays in receiving tax refunds despite submitting their proposals. It is estimated that the VAT refund of these firms would come to over US$10 million.

Due to depleting orders, leading rubber manufacturer and exporter Hoa Thuan Trading had to halt production while cutting jobs. It has yet to receive US$ 2.1 million in tax refunds. This is against the backdrop of its revenues dipping by 95% and the constant cost pressure coming from corporate income tax and high bank interest.

Huy Brothers also said it struggled in the absence of prompt tax refunds. The firms point out that they are forced to remit a fine of 0.3% for late payment of taxes which is another burden on them.

The firms are unable to offer any wage hike for the workers amidst current high inflationary pressure. Hence many labourers leave the sector for other jobs, especially when working conditions are already very challenging. 

Some other companies like Viet Phu Thinh Rubber and Nam Phat Rubber are among the firms that halted operations by the end of April due to high bank interest rates and pending tax refunds.

More firms move over to sustainability platform

However, offering a silver lining, several firms are hitching on the sustainability bandwagon in order to tap the new opportunities to stay afloat.

They are preferring to make use of PEFC-CoC sustainable rubber, despite its higher cost compared to traditional latex. With this, they can surmount financial strain but also present themselves as promoters of sustainability and thus gain increased acceptance in the Western World. The European Union is implementing the Carbon Border Adjustment Mechanism (CBAM) by October 1, 2023, whereby rubber and rubber product exporters can trade in carbon credits and earn extra income.

Pham Anh, the Deputy General Director of Binh Long Rubber Company, which is headquartered in Binh Phuoc province, recently said his firm was set to sell over 1,000 tons of certified sustainable rubber latex in 2023. It will carry a higher cost of US$ 25-30/ton in comparison to normal latex. Binh Long has so far come out with only about 500 tons/year.

The Vietnam Rubber Group sold 50,000 tons of sustainable rubber latex in 2022. Only 10% of the Vietnam rubber area has been certified for sustainability so far, and it has now upped its efforts to get a larger percentage covered by ESG. Vietnam presently finds it difficult to meet the standard since it has over 265,000 smallholders and hundreds of firms who own over half of the total 940,000-hectare rubber production area. Smallholders are mostly ill-informed on Forest Stewardship Council (FSC) certifications, the industry’s gold standard for meeting legal and environmental norms. EU deforestation laws are expected to come into force by early 2025.

The author of the article Vinod Nedumudy is a journalist who previously worked with leading Indian newspapers like The Free Press Journal, The New Indian Express, Deccan Chronicle and The Mathrubhumi in various capacities over a career spanning three decades. Currently functioning from Kochi, India, he writes about rubber and tyre-related market developments, among other things with Helixtap. He can be reached at hello@helixtap.com.