Tuesday, March 27, 2012

Plantations: Rubber for Protection; Tea for Risk Takers

A summery of the research report published by the CAL Research focussing the future of the Rubber Plantation companies in Sri Lanka.

Plantations: Rubber for Protection; Tea for Risk Takers

Global rubber shortage is looming.

• The Association of Natural Rubber Producing Countries (ANRPC) forecasts global supply
to be 11.4mn metric tons in 2012, which includes a forecast of nonmember countries increasing
production by 22%

• c.60% of natural rubber demand is driven by increasing tire sales and tire demand is expected to
increase by 4.7% annually through 2015. In 2012, the ANRPC estimates natural rubber demand
to be 11.9mn metric tons

• Global stockpiles are c.1.5mn metric tons, with Thailand holding c.27% and China holding

• CAL estimates that supply may meet demand in 2013E

In Sri Lanka, production is still falling short of demand (+c.3% YoY in the running deficit).

 • In 2011, Sri Lanka had a running deficit of 11.8mn tons, indicating an increasing shortfall
in local production

• Further, the government has increased CESS on nonvalue added rubber exports (+c.50%), which
may have an impact on prices as well.

Sri Lanka rubber sector is also expected to rise on FX uplift.

• Assuming that NSA’s remain unchanged (i.e.not factoring increase in rubber prices), the
rubber plantations stand to gain 17% due to the LKR fall.

Efficient low cost rubber planters with greatest exposure to rubber to benefit most.

*  Along with expected increases in oil prices

• Brent futures are an indication of future rising spot prices.

• Spot prices have increased 15% in Feb 2012 YoY

*  Expect rubber prices to continue its climb

• TOCOM rubber future prices indicate that rubber prices will increase steadily by 1.5% over the next six months (Mar-Aug 2012).

[CAL's Decision Rule: . Plantations with increasing exposure to rubber and/or palm . Rubber yields & >800 kgs/hectare and gross profits in rubber & >55%]

source - CAL Research

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