BANGKOK -- Thailand's largest and the world's second largest rubber producer is placing a big bet. With global rubber prices on the decline, Sri Trang Agro-Industry is increasing its capacity.
The goal is to raise capacity by nearly 10% at its domestic and overseas facilities, including a newly launched Myanmar factory.
That is step 1 on the path of hope back to profitability. The second step is improving both its sales and production efficiency.
Sri Trang in October launched its first Myanmar rubber factory in the southeastern state of Mon. It is capable of producing 4,800 tons of rubber a year, a drop in the bucket compared to what Sri Trang's Thai facilities can produce -- about 60,000 tons per year. But Executive Director Veerasith Sincharoenkul sees value in the new plantation. "Rich in both natural rubber and manpower," Veerasith said, "Myanmar has high potential."
The factory collects latex tapped from rubber trees on nearby plantations, then uses it to produce rubber sheets and blocks. If the business goes well, Sri Trang will build another factory in Myanmar that can produce 10 times more rubber than the first facility.
Sri Trang sold about 1.2 million tons of natural rubber in 2014, accounting for roughly 10% of the world's rubber sales. Its customers include leading tire-makers such as Michelin from France and Bridgestone of Japan.
Some 80% of natural rubber is used to make tires. Growing car sales, particularly in emerging nations, had been pushing up demand for rubber. In 2014, worldwide rubber sales by volume increased 6.8% to 12.16 million tons.
Since then, China's slowing economy has taken the global market down a slide. The country is the world's largest rubber consumer but is now oversupplied with the stuff. As a result, rubber prices have declined to around $1.20 to $1.30 per kilogram, about a third of their peak, which came in 2011.
The plunge has directly hit Sri Trang's earnings. The company posted declines both in sales and profits in 2014. In desperation, Sri Trang this year began focusing on selling more rubber to bring in more revenue.
The company operates about 30 rubber factories in Thailand, Indonesia and Myanmar. According to Veerasith, it plans to increase its combined production capacity from the current 1.5 million tons per year to 1.6 million tons by the end of 2016.
It is also working to improve efficiency by, for example, assigning each factory worker a daily production target, measured in kilograms. It also intends to improve the quality of its rubber so that it can command higher unit prices.
The end goal is to improve company performance. Along these lines, Sri Trang owns a research and development unit where it teams up with tire-makers to develop rubber materials. It is also to begin tapping trees on its own 80-sq.-km rubber plantation for the first time by the end of this year.
Now that Sri Trang has full tree-to-tire facilities and skills, the business hopes to become more competitive and raise its share of the global market to the 11% to 13% range.