Rubber, known for its elastic quality, is a commodity that is used in many products and applications around the globe (from industrial to household products). There are two types of rubber, to wit natural rubber and synthetic rubber. Natural rubber is made from the juice (latex) of the rubber tree, whereas the synthetic type is made from petroleum. Both types are interchangeable and as such influence each other&#;s demand; when the price of petroleum rises, demand for natural rubber will increase. But when supply disruptions of natural rubber cause its price to rise, then the market tends to turn to synthetic rubber. This section discusses Indonesia&#;s natural rubber sector. Indonesia is one of the largest producers and exporters of natural rubber.

As the second-largest rubber producer, Indonesia supplies a substantial amount of rubber to the global market. Since the s, the Indonesian rubber industry has been experiencing steady production growth. Most of the country&#;s rubber output &#; approximately percent &#; is produced by smallholder farmers. Government and private estates thus play a minor role in the domestic rubber industry.

The second chart shows a steep recovery in the natural rubber price in the last quarter of and start of . The reason behind this price increase are supply disruptions in Thailand. Massive and widespread floods in the southern part of Thailand, where most of the nation&#;s rubber cultivation takes place, had a big impact on the natural rubber supply (both production and distribution). Severe drought was also cited a reason for weak rubber production in Thailand.

Like most other key commodities, international rubber prices have been under pressure after amid weak global economic activity (which impacted negatively on the automotive industry) as well as a natural rubber supply glut. Moreover, low crude oil prices made synthetic rubber very competitive, hence the natural rubber price sunk significantly between early and late . Meanwhile, advances in the development of bio-based tires also pose a threat to the rubber industry.

Compared to its rubber producing competitors, Indonesia contains a low level of productivity per hectare. This is in large part due to the overall older age of its rubber trees in combination with low investment capability of the smallholder farmers, hence reducing yields. Whereas Thailand produces , kilogram (kg) of rubber per hectare per year, Indonesia only manages to produce , kg/ha. Also Vietnam (, kg/ha) and Malaysia (, kg/ha) have higher rubber productivity.