Rubber Manufacturing in Southeast Asia, an Introduction Part 2: Vietnam and Malaysia
Southeast Asia is widely known as the world’s largest region for rubber plantations, with Thailand, Indonesia, Vietnam, and Malaysia accounting for nearly 80% of the global natural rubber output.
This article is part two of our two-part series and will cover some important information for companies to consider when thinking about sourcing rubber products in Vietnam and Malaysia, the two fastest-growing markets in the rubber industry worldwide.
Overview of the rubber industry in Vietnam and Malaysia
Thanks to Vietnam and Malaysia’s natural resources and the global soaring rubber demand, both markets have the potential to grow further in upcoming years, Yet there are distinctive characteristics between the two nations. While Vietnam’s major advantage is in raw materials sales (natural rubber), Malaysia stands out in the production of synthetic rubber and medical glove production.
In 2021, the Vietnamese rubber yield surpassed major manufacturing countries such as India, Thailand, and Malaysia. Vietnam’s estimated rubber output was at 1.2 million tons in the year, accounting for 8.7% of the world’s market share. The industry remains export-oriented, with China, India, Taiwan, South Korea, and the United States being the main export destinations. Despite the global COVID-19 pandemic, Vietnam’s rubber export turnover in 2021 was up about 36.2% compared to a year earlier. Furthermore, Vietnam is also the 5th largest importer of rubber with a total value of 648 million USD in 2020, and imports mainly from Cambodia, Laos, and Thailand.
Malaysia ranked seventh in natural rubber production worldwide. In 2021, the total production volume reached 690.4 thousand tons, of which natural rubber and synthetic rubber made up 68% and 32% respectively. The output decreased by 4% compared to 2020. Although the plantation hectarage for natural rubber plantations has been decreasing gradually over the last decade, the rubber industry continues to be significant for Malaysia due to its importance as an export product. In 2021, Malaysia’s export of rubber products soared 50.5% (YoY) to reach approximately 14 billion USD, with latex goods as the biggest contributor. The main export markets are the US and the EU which together take up more than 50% of the country’s export value.
Products that can be sourced in Vietnam and Malaysia
Vietnam’s rubber industry development has mainly relied on the export of raw materials. There are three main product groups in the industry, including natural rubber, rubber products, and raw rubberwood/rubberwood products. Specifically, tire production consumes approximately 70% of the total amount of natural rubber, making it one of the fastest-growing rubber products, together with automobile spare parts, mattresses, and shoe soles. As sustainable materials have been rising in recent years, raw rubberwood, which is considered environmentally friendly, has become an important source of raw materials in Vietnam’s timber industry.
Malaysia focuses on manufacturing and exporting products from rubber instead of raw and semi-processed rubber. The biggest and most popular export product is rubber gloves, which accounted for 89% total export value of rubber products in 2021. Glove export already doubled in 2020 and continued to increase by 55.4% in 2021. Other rubber export products that can be sourced from Malaysia include new pneumatic tires, latex thread, tubes, pipes, hoses, insulated wire and cables.
The natural rubber industry is one of Vietnam’s most important agricultural and forestry industries. The Vietnamese government has focused on promoting the industry as a national brand to further push its growth. Ministries and localities have coordinated to implement supply-demand strategies to ensure the rubber supply matches demand. Rubber manufacturers are encouraged to produce natural latex and improve processing technologies to stay competitive in the market. The National Vietnam Value Programme allowed rubber companies to assess business performance and branding strategies, in which quality, innovation, and pioneering capacity are the main criteria taken into account for rubber businesses to be qualified as national brands.
The Malaysian government consistently grants support policies to upstream rubber production companies as the industry is considered a key pillar in the economy. The policies range from subsidized gas prices and subsidy packages for high-technology companies, to tax exemption for up to 15 years for foreign companies investing in glove manufacturing. Big local players in the industry have taken advantage of the government policies and invested heavily in this sector.
Import duties for rubber products from Thailand and Indonesia
Import duties to the US
Malaysia and Vietnam have not signed any Free Trade Agreements with the US, thus there is no tax preference for such countries when exporting rubber products to the US. Nevertheless, raw rubber and medical gloves fall in the categories that enjoy 0% import tax, while new tires may be subject to up to 4% tariff depending on the types and purposes.
The trade war between the US and China has undoubtedly had a direct impact on Vietnam’s rubber industry as China is the leading import market for Vietnam. Raising the import tax on Chinese imported rubber products reduced the demand for natural rubber from the Chinese market, subsequently affecting the Vietnamese market. Additionally, Vietnamese tire manufacturers’ capacity is too feeble to fill the gap in the US market, as such, it is currently almost impossible to compensate for the damage the trade war has caused.
Since the end of 2019, US Customs and Border Protection has banned glove imports from several Malaysian-based manufacturers over allegations of forced labour practice. Therefore, imported products from Malaysia, including rubber gloves, are under strict scrutiny by the US. Thus, banned Malaysian glove companies that are large players in the industry, are urged to address the issues so the ban can be lifted and exports can resume in the future.
Import duties to the EU
The EU-Vietnam Free Trade Agreement (EVFTA) is expected to fuel Vietnam’s rubber exports to the EU. European countries’ demand for rubber and rubber products is very large, especially for high-grade rubber (SVR CV – Standard Vietnamese Rubber, Constant Viscosity), SVR 10, and SVR 20 categories, which are widely used in technical industries or manufacturing of everyday products manufacturing. With EVFTA, rubber couplers and rubber hoses are exempt from tax immediately, compared to the previous 3% – 4.5% rate. For rubber conveyor belts, taxes will be gradually reduced from 6.5% within 5 years. Most of the key rubber products, such as tires and medical gloves, enjoy a 0% imported tariff from the EU.
Malaysia and the EU formally started negotiation for a Free Trade Agreement in 2010, but it was put on hold in 2012 after several discussions. Recently, after the pandemic, the Malaysian government is considering restarting the trade talks. Currently, raw rubber imported from Malaysia to the EU bears a 0% tariff while main rubber products, including tires and medical gloves, are subject to 4.5% and 2% import tax respectively.
Vietnam and Malaysia are two of the fastest-growing nations when it comes to rubber production. Vietnam’s rubber industry development has majorly relied on the export of raw materials, while Malaysia is globally recognized for medical gloves production.
Although the COVID-19 pandemic has had a strong impact on the entire production and processing process, both Vietnam and Malaysia have made efforts to overcome the challenges. Malaysian companies specializing in upstream rubber production have been financially funded by the government, while Vietnam’s government is focusing on promoting the national brand of the rubber industry to gain a competitive advantage in the global market.
In addition, thanks to the EVFTA, Vietnam enjoys an extensive tariff exemption and reduction for its rubber products that are imported from the EU. Malaysia is also catching up with its neighbour by re-initiating discussions about free trade agreements, aiming for a more competitive costing position for rubber export.