Photo: Bloomberg
Singapore has evolved from producer to leading trader. But can the republic keep up with disruption of the rubber trade?
The recent boom in demand for gloves because of the pandemic has overshadowed the upstream segment of the rubber industry. However, rubber trading, which plays a major part in the regional economy and has seen plenty of ups and downs in its storied past, is quietly reinventing itself for the post-pandemic world.
With more than a century of history in Singapore, the evolution of rubber is intertwined with the developmental story of the republic — the country provided fertile ground and ample economic opportunity first for colonial and then regional powers.
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In 1877, long before the Federation of Malaya or even the Second World War, the seeds of what would become a multi-million-dollar rubber industry had to travel halfway across the world to take root here. In the second attempt by the British at growing rubber in Southeast Asia, they germinated 22 rubber seedlings in England’s Kew Gardens and sent them to the region. Nine reached Kuala Kangsar in Perak, 11 arrived at the Botanic Gardens of Singapore and two were planted in Malacca.
At that time, rubber was not popular with farmers as they were invested in more profitable crops like tapioca, pepper, sugar and coffee. However, two things led them to switch to rubber. One was the breakthrough by botanist and director of the Botanic Gardens Henry Nicholas Ridley, who advocated tapping rubber sap by removing a section of the bark, instead of using an incision, which often killed the tree.
The other was the invention of the pneumatic tyre in 1888 as the automobile industry began to pick up steam. This drove burgeoning demand for rubber where it remains the largest source of demand for this cash crop until this day.
As coffee growers in Malaya began to switch to rubber cultivation, Singapore emerged as a hub for the rubber industry, supplying skilled labour and capital for processing the region’s rubber for export to the West. And as the colony came into its own, so did its role within the region’s rubber trade. Industry groups, such as the Chinese Rubber Association, sprang up to organise the rapidly evolving market.
Even Singapore’s banking sector, the largest in the region today, can trace its roots to the early iterations of the rubber trade, sometime in the late 1910s. The Oversea-Chinese Bank, for example, was formed in 1919 by two rubber magnates: Lim Nee Soon and Tan Ean Kim. Following the Great Depression, the bank joined two others to become today’s Oversea-Chinese Banking Corp (OCBC).
“The rubber trade first gave rise to Singapore as a key financial centre, when our now-established banks were set up to facilitate trading activities,” says Jessie Ng, associate director of commodities at the Singapore Exchange (SGX).
After World War II, the Chinese Rubber Association was renamed the Rubber Trade Association of Singapore (RTAS) in 1950. Outside of Singapore, RTAS connects local traders with regional trading communities through the Asean Rubber Business Council, which also includes rubber producing countries Thailand, Indonesia, Vietnam, Malaysia, Cambodia and Myanmar.
If not for the pandemic, the RTAS would have had hosted its annual Lunar New Year Rubber Dinner this year, which brings together close to a thousand industry leaders from around the world.
“Singapore enjoys a proximity advantage, being close to Southeast Asian countries that produce 75%–90% of [the world’s] rubber,” adds Ng. “Singapore’s neutral and holistic rubber ecosystem has attracted regional participants, from procurement offices to trading firms from China to be based here.”
Land-scarce Singapore may not have kept the plantations but the trading of the commodity has endured in other ways. In June 2008, SGX welcomed the Singapore Commodity Exchange (Sicom) into its fold following a reported $7.5 million acquisition. Already a reputable exchange then, Sicom has grown in the 13 years since it became part of SGX’s stable. In 3QFY2021 ended March 31, SGX reported a total Sicom volume of 462,777 contracts, of which TSR20 Rubber Futures made up the lion’s share with 459,996 contracts. SGX’s RSS3 Rubber Futures, TSR20 Forward Swaps and TSR20 Rubber Options made up the remainder of the contract volume. The quarterly figure is, however, 8.82% down q-o-q from 2QFY2021’s 503,609 contracts.
That said, trading for Technically Specified Rubber, or TSR, has been running hot even amid a pandemic. While there were periods of volatility, rubber prices have climbed steadily, rising from the low of 104 cents/kg in February 2020 to the current price of 171 cents/kg, representing a 64% increase.
“In my opinion, the demand for rubber will be strong as more economies will recover from Covid-19,” says Benjamin Yeo, head of derivatives and commodities dealing at Phillip Futures, one of the brokers providing investors with the means to trade these asset classes.
The Sicom TSR20 Rubber price has been the reference benchmark used by physical traders, producers and tyre makers across the region, says Yeo. “Singapore has been well-established as a rubber trading hub connecting global participants from the entire value chain.”
“Being centrally located in Southeast Asia, Singapore’s proximity to major rubber producing countries allows it to act as a neutral leader in the rubber industry providing a trusted platform for price discovery,” he adds.
The common reference point allows all participants to hedge their exposure against market volatility, he adds. “This is a deliverable contract; sellers can opt to deliver approved TSR20 rubber from Thailand, Indonesia and Malaysia. The contracts traded on SGX are easily accessible and have attracted financial participants due to its deep liquidity.”
After decades at the forefront of the rubber trade, however, Singapore is facing fresh competition from China. The Shanghai International Energy Exchange (INE) TSR20 Rubber, launched in August 2019, has been “very successful”, says Yeo. “We have seen a 300% growth in exchange trading volume compared to a year ago,” he adds.
In May 2019, SGX launched the industry’s first options contract on TSR20 rubber, the global benchmark grade, offering market participants a new risk management tool. “The SGX Sicom TSR20 Rubber Options contract is based on the SGX Sicom TSR20 (FOB) Futures contract, which has grown in liquidity amid China’s internationalisation and rising global demand for hedging,” said SGX in a press release.
China, one of the world’s largest producers and consumers of commodities, has been setting up the necessary infrastructure of exchanges and regulatory frameworks to encourage their active trading.
In the same vein, as the world’s largest producer and exporter of automobile tyres, China has been investing in manufacturing facilities and securing the rubber supply, all in the name of its Belt and Road Initiative.
Yet, therein lies partnership opportunities for Singapore too, noted SGX’s head of derivatives Michael Syn in 2018. “Singapore offers deep sectoral knowledge and the ability to syndicate resources in the financing, management expertise and technical capabilities. In recent years, synergies have been created through alliances between internationalising Chinese companies and Sicom members and participants such as Sinochem International and Halcyon Agri, Hainan Rubber and R1 International,” wrote Syn in a note commemorating RTAS’s centennial.
See also: Halcyon Agri ranked the most transparent rubber-producing company in international assessment
For now, SGX TSR20 Rubber remains relevant, says Phillip Futures’ Yeo. “It continues to be the pricing benchmark used by the international community and it reflects the pricing for the seaborne market.”
With prices referenced by physical and financial market participants from more than 200 cities, SGX Sicom benchmark contracts are used by physical participants to price contractual agreements, says SGX’s Ng. “SGX continues to lead the offshore market, as evidenced by the growth in open interest and volumes, by more than four and six times respectively, over the past decade.”
Disrupting the rubber trade
China’s foray into the rubber trade shows that the booming sector is ripe for disruption. “Looking ahead, the rubber industry will be working towards increasing the adoption of technology in physical trading, supply chain management and data analytics,” wrote SGX’s Syn, more than a year before the outbreak of Covid-19. “A digital transformation will go a long way to attract a new breed of young market and industry professionals.”
To that end, SGX invested US$1.5 million ($1.98 million) in HeveaConnect this March to hold a 9.09% stake in the digital platform, which provides tools to facilitate sustainable rubber trade. According to Ng, HeveaConnect focuses on digitalising traditional physical trading while providing custom software and reporting tools to use data in advancing sustainability.
See also: SGX invests in 9.09% stake in HeveaConnect for US$1.5 mil
Indeed, while Covid-19 has brought about a boom for rubber products like gloves, the pandemic has also highlighted how the industry desperately needs to modernise. Farah Miller, CEO and co-founder of Helixtap Technologies, observes that Covid-19 has led to dramatic structural changes in consumer behaviour patterns — a greater number of people and companies embracing new trends in cloud technology and e-commerce. “Based on this, our view is that in the longer term the adoption of digital platforms will be the norm, even in B2B markets,” she says.
Founded in 2018, Miller’s company presents a present-day solution to a sector encumbered for decades by middlemen. “There is a lack of technology as a fundamental core of the rubber market. From the very manual process of tapping the trees to factories, which are unmapped and not digitised,” says Miller.
“But it does not have to stay this way. The ability to use cloud-based pay-as-you-use solutions and the greater availability of the internet have also helped smaller, more remote businesses access technologies more easily, where price and geography could have been limiting factors previously,” she adds.
Marketed as “the world’s only independent digital marketplace for physical rubber”, Helixtap Technologies’ digital platform offers a variety of tools for end-to-end trading including trade financing, access to capital, selling excess stock and more. The online approach offers an egalitarian playing field for everyone in the supply chain, ranging from latex farmers, raw material traders, rubber producers and processors to intermediate traders and consumers.
“Smaller businesses can now participate without large upfront costs to raise their profiles, taking advantage of smart logistics and supporting services such as automated contracts, financing and marketing to reach international markets,” says Miller.
Singapore-headquartered Helixtap was co-founded with industry veteran Brian Miller, who had a hand in developing the Gold Exchange of Singapore and the former Singapore International Monetary Exchange (Simex) with Singapore International Chamber of Commerce Rubber Association (Siccra), RTAS and the Monetary Authority of Singapore (MAS). The duo has a combined experience in the rubber market of over 60 years.
“We see our role at Helixtap as the nexus between the rubber market and technology,” says Miller. “We want to drive innovation so companies can thrive in the decades to come.”
