Determinants of the Price of Natural Rubber in Malaysia

Abstract

The rubber industry has been designated as one of the sectors under a special focus together with the palm oil industry. Through this listing, the rubber industry is expected to increase its contribution to the Gross National Income (GNI) from RM18.9 billion as registered in 2009 to RM52.9 billion by 2020, with the implementation of 4 Entry Point Projects (EPPs) that have been identified (Chin et al., 2013). Abstract: This paper aims to determine the factors that will affect the volatility of natural rubber price (represented by SMR20) in Peninsular Malaysia. With the objectives of describing the high volatility in natural rubber (NR) price may be a result of demand of NR (import), supply of NR (export), currency exchange rate and crude oil price. The data used for this study is from year 2000 until 2015 that were obtained from Department of Statistics of Malaysia, Malaysian Rubber Board (MRB), and Bank Negara Malaysia (BNM). The relationship between the independent variables and the price of NR were tested using descriptive and multiple regression analysis. The findings indicated that demand of rubber, supply of rubber and currency exchange rate has an impact towards natural rubber price. However, crude oil price failed to support one of the hypotheses between crude oil price and natural rubber price. As for conclusion, the rubber industry can no longer be viewed from the narrow perspective of a mere supplier of raw rubber. Developments in the last decade give a clear indication of the vast potentials for the industry when it is developed in a more integrated manner. Rubber cultivation per se does not generate attractive returns to investment, rubber products manufacturing and rubber wood industries offer lucrative returns.