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Cost Analysis: The Rubber Bull Market Has a Long and Distant Road Ahead
Release Date:
2023-09-13
I’ve been closely watching the rubber market, as its supply is highly inelastic; when a major rally does materialize, it tends to be exceptionally strong. Moreover, that significant upturn may not be far off—after all, the previous cycle lasted 10 to 20 years.
I’ve been closely watching the rubber market, as its supply is highly inelastic; when a major rally does materialize, it tends to be exceptionally strong. Moreover, that significant upturn may not be far off—after all, the previous cycle lasted 10 to 20 years.
However, over the past few years, many of those who tried to buy rubber at the bottom have likely gone bust. At this point, price becomes paramount, so it’s essential to examine the cost structure of rubber.
I. Cost Structure of Rubber
The cost of natural rubber is primarily composed of three components:
1. Rubber plantation costs
This includes material costs as well as the labor costs of tapping. A key characteristic of rubber plantations is that upfront investment constitutes a significant cost; whether or not tapping takes place, fixed contract‑related expenses must still be incurred. Consequently, for a plantation, if rubber prices fall below labor costs, there will be no profit, and tapping will naturally cease. Conversely, if prices are sufficient to cover these costs, tapping will proceed. Thus, labor costs are a critically important component of total production expenses.
2. Processing Costs
Rubber is a liquid and relatively dispersed, requiring procurement as well as further processing into standardized products. This portion of the cost is relatively fixed, with low elasticity.
3. Other Costs
Before rubber can be credited to an exchange account, it must first be transported and is subject to customs duties; currently, the ASEAN most‑favoured‑nation import tariff stands at 20%.
However, this tax rate is variable; for example, it stands at 10% this year.
Rubber is a strategic commodity, which is why China has protective and subsidy policies in place. Although rubber is an internationally traded agricultural product, its price behaves somewhat like that of sugar: it carries high strategic value, exhibits a significant domestic–international price differential, and is underpinned by a relatively complex set of fundamentals.
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