Indonesia, the world's second-largest natural rubber producer, is expected to see slowing rubber output in 2016 on the back of the El Nino weather phenomenon as well as haze caused by forest fires on Sumatra and Kalimantan. Although the production decline may support rubber prices in the middle-long term, Indonesian rubber farmers are currently still plagued by rubber prices that have fallen to six-year lows due to reduced rubber demand from China, the world's largest rubber importer.
El Nino, a weather phenomenon that occurs once every five years on average, involves periodical warm ocean water temperatures off the western coast of South America that can cause climatic changes across the Pacific Ocean. These changes can involve severe droughts in key agricultural-producing countries in Southeast Asia hence impacting on the global commodities market. In Indonesia, the usual dry season typically lasts from May to August. However, due to El Nino the country’s dry season may be extended into December. A prolonged dry season also increases risks of forest fires. Currently, parts of Southeast Asia (particularly Indonesia, Malaysia and Singapore) are plagued by severe haze caused by companies' and people's illegal slash-and-burn practices to clear land for planting on parts of the Indonesian islands of Sumatra and Kalimantan.
El Nino and haze may lead to declining rubber output in 2016 as it prevents farmers from tending rubber trees while the lack of sunshine and dry soil also disturb production. There have been reports of Indonesian rubber farmers having cut their trees to sell rubber-wood in order to generate additional money amid low rubber prices (however such drastic moves can further curb future rubber output). Several major rubber producers have looked at supporting rubber prices through the implementation of floor prices, limitation to exports, or by providing subsidies for farmers. However, these moves have had limited success.
In 2015 about 20,000 hectares of rubber estates have been replanted as part of programs to rejuvenate rubber trees, hence increasing yields. Currently, Indonesia has about 3.65 million hectares of rubber plantations.
The Indonesian Rubber Association (Gapkindo) expects Indonesia's rubber production in 2015 to be unchanged from the preceding year at approximately 3.2 million tons. Meanwhile, the country's rubber export are estimated to decline slightly to 2.5 million tons in 2015, from 2.6 million tons in the previous year. This decline is caused by increased domestic demand for this commodity.