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Rubber trader navigates global uncertainties with sustainable ambitions

Namazie International faces down competition through diversification and global expansion

Rubber trader navigates global uncertainties with sustainable ambitions

TRADERS of natural rubber are under pressure as competition piles on, so Namazie International is diversifying and improving its green credentials to differentiate itself.

Rubber is relatively easy to transport in containers, said Reza Namazie, managing director and chief financial officer of the company.

This lowers the entry barrier to the rubber trading business. At the same time, the volatility of rubber futures makes profitability a challenge.

Many established rubber trading firms have therefore exited the industry, Namazie said, while the rest have to constantly reinvent themselves to stay relevant.

Namazie International counts itself among those that are succeeding in this reinvention.

Diversifying from trading

Founded in 1955, the Singapore-based commodity trading house focuses on natural rubber and latex.

It sources rubber from processors and exporters in regions such as South-east Asia and West Africa, and sells to a global network of customers, mainly tyre and glove manufacturers.

In 2014, the trading house ventured into both processing and distribution businesses as part of its diversification strategy.

Surmounting a steep learning curve, the company built a factory in Banten, Java. Namazie said the decision “allowed us to add value to the rubber supply chain, which in the long run will increase our margins”.

Namazie International’s Indonesian factory in Banten, Java, where cup lump is washed, cut and dried in an oven dryer. PHOTO: NAMAZIE INTERNATIONAL

The company also ventured into the distribution business in Europe, where it has since managed to build a significant presence.

Despite massive supply chain disruptions during Covid-19, its European customers managed to carry on factory operations, given Namazie International’s ready stocks in the region.

“Now, distribution accounts for more than 40 per cent of our total turnover, and is a growing business segment for us relative to pure trading,” Namazie added.

Green transition

As players in the rubber supply chain face increasing pressure to establish sustainable practices, Namazie International has also embraced the green transition.

Operating in Europe has made adoption of environmentally friendly practices all the more important for the company.

Last year, the European Union passed the Regulation on Deforestation-free Products (EUDR). Among other things, the new rules require all natural rubber importers to prove that their rubber was not grown on land deforested since 2020.

“Almost 60 per cent of all the cup lump that we purchase from farmers is currently geo-mapped and risk assessed, to ensure that the raw material does not emanate from recently deforested areas and complies with the EUDR law,” Namazie said.

Cup lump is the name for the fresh latex that drips from a tapped tree into a cup.

“We see this new regulation as an opportunity, as this would be a way, at least in the short term, to add value for our customers and obtain a better price for our product, thereby increasing our operating margin,” said Namazie.

The company is working closely with an IT company to map as many farms as possible, so as to offer customers EUDR-compliant rubber.

Cost remains a major obstacle in the green transition, however, so Namazie believes sustainable financing will be the “main driving force” behind small and medium-sized enterprises adopting greener and more sustainable policies.

Green financing

Namazie said the company has been aided in its green journey by financing and related sustainability services from UOB.

“When UOB came to us with their Sustainable-Linked Trade Finance (SLTF) solution, it was for us a win-win situation, as we now had some financial incentive to adopt sustainability goals.”

These bank facilities are tied to sustainable performance targets (SPTs), such as a reduction of Scope 1 and 2 emissions by at least 20 per cent by the year 2026.

“If we achieve these SPTs, the interest margins that we pay would be reduced. This would then have a big impact on our bottom line, as interest is a major cost component for our business,” said Namazie.

The company’s compliance with these targets is evaluated by independent third-party ratings agencies.

Last year, Namazie International asked UOB for an increase in its trade limit under the SLTF.

The company had expected rising demand from India, China and Europe, and forecast that rubber prices would increase.

This forecast turned out to be right – Japanese rubber futures traded on the Osaka Exchange have risen from roughly 243 yen (S$2.10) per kilogram at the end of last year to above 300 yen this month.

As part of its green transitioning journey, the company has also completed the UOB Sustainability Compass and attended the Sustainability Compass Forum in 2023.

It is also a member of EcoVadis, a sustainability data platform that helps the company assess whether its policies are in line with sustainable practices. Its current rating, renewed annually, is bronze.

Additionally, Namazie International’s factory in Indonesia became a member of the Global Platform for Sustainable Natural Rubber (GPSNR) in 2023.

GPSNR is an organisation that aims to improve the environmental and socio-economic condition of the rubber ecosystem, by ensuring that the policies of its members are aligned to key sustainable guidelines.

Namazie International is working to move away from fossil fuels at its processing factory in Indonesia. “This year, we transitioned from diesel to compressed natural gas (CNG) for our burners,” said Namazie.

“The next stage is to use a biofuel, such as palm oil husks, to run our oven burners, which is even greener than CNG. This will lower the cost of our processing by at least 20 per cent,” he added.

The company is also looking to install solar panels on the factory roof to power its machinery.

“For both of these projects, we hope to be able to get green financing. Although the cost of installation is significant, we hope to be able to recoup our investment over the lifespan of the projects,” said Namazie.

He added that Namazie International has recently applied for additional trading facilities on expectations of increasing natural rubber demand, given the restrictions imposed by EUDR.

West Africa as the next growth market

For the next phase of its reinvention, Namazie International is eyeing West Africa. Major rubber producers in South-east Asia, such as Indonesia and Vietnam, are producing less of the commodity due to limited government support for replanting.

Rubber tapping is also a less attractive livelihood for farmers, thanks to volatile prices and rising living standards in the region.

West Africa, on the other hand, is a fast-growing region for both natural rubber production and processing. Cote d’Ivoire is expected to become the second-largest rubber producing and processing country after Thailand, with an exponentially growing number of new factories, said Namazie.

“For the past few years, we have been working closely with both big and small processors in Cote d’Ivoire, and now almost one-third of our sales volume originates from West Africa.”

Namazie International is also planning to form joint ventures with new factories there, to leverage on its marketing and sales strength as well as its expertise as a processor in Indonesia.

Added Namazie: “We see double-digit growth for sales... as many consumers pivot away from South-east Asia towards Africa.”

Sustainable financing for sustainable growth

UOB aims to drive sustainable growth across all sectors through its comprehensive suite of sustainability financing solutions. Its Sustainability-Linked Trade Finance solution supports sustainable supply chains and trade activities, by incentivising borrowers to achieve pre-agreed sustainability performance targets.

Eric Lian, head of group commercial banking at UOB, said this financial support enables small and medium-sized enterprises (SMEs) to invest in technologies, enhance energy efficiency and adopt sustainable supply chain practices.

“We have observed an uptick in the number of SMEs transitioning to sustainable operations, recognising the impact of sustainability on the environment as well as their long-term competitiveness and resilience in the market...

“Looking ahead, we foresee an even greater shift towards sustainability, as businesses increasingly align their strategies with sustainability goals,” said Lian.

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