Project:VulcanizedRubberPreparedby:ReciprocusInternationalDate:January2017

TableofContents

ExecutiveSummary 2

MacroeconomicOutlookoftheIndustry 3

IndustryOutlook andAnalysis 4

RegionalLandscapeandAnalysis 5

OpportunitySpotlightandAnalysis 6

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ExecutiveSummary

ReciprocushasrecentlycompletedastudyonexpecteddemandgrowthforVulcanizedRubberintheGulfregion(specificallywithintheGCCmarkets).Thishigh-levelsnapshotsummarizessomeaspectsofourfindingsandinsights.

• Insightshavebeenformedbasedonbothprimaryandsecondary,publiclyavailableinformationaswellasourknowledgeofvulcanizedrubberintheGCCregion.

• Ourhigh-levelresearchhasidentifiedasustainedandsubstantialoveralldemandfromtheGCCregionforvulcanizedrubber.

• Onawhole,globaldemandforrubberhasslowed,primarilyduetoslowinggrowthofChina’sautomotiveindustryandweakerdemandfortires.

• However,intheGCC,vulcanizedrubbermarketisforecastedtogrowsteadilyat18.9%CAGR.• Thisgrowthissupportedbythekeydrivers,whichismainlyspurredbytheincreasingdemandforgaskets

andsealsusedforindustrialapplicationsaswellasrubberglovesusedinthemedicalandF&Bindustries.• WehaveidentifiedonemainpotentialgrowthopportunityintheGCCregionacrossourobservation– the

UAE.• Basedonourresearch,theUAE,amongtheGCCcountries,hasthehighestimportvolumeofvulcanized

rubberfromASEANcountries,especiallyIndonesia,Vietnam,ThailandandMalaysia.• Thedemandformedicalservices,aprimarydrivenofdemandintheEmirates,isexpectedtoincreasedue

tofactorssuchasrapidpopulationgrowthandanexpandingmiddleclass,creatingdemandforrubbergloves.

• TheUAE’sheavyrelianceofthecrudeoilindustryanddevelopmentofthemanufacturingindustrygeneratesdemandforrubbergasketsinthepetrochemical,automotive,power,marine,desalinationandEPCcontractors.

• GiventheexcitingprospectsintheGCCmarket,wewouldrecommendSingaporecompaniesinthevulcanizedrubbermarkettoexploreandexpandintotheGCCregion,theUAEinparticular.

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MacroeconomicOutlookoftheIndustry

BusinessOverview

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GlobalNaturalRubberSurplus/Deficit(‘000stonnes)

Theglobalnaturalrubbermarketiscurrentlyinadeficitduetotheclosureoftheovercapacitygapin2015.OverallglobaldemandforrubberhasslowedprimarilyduetotheslowdownofChina’sautomotiveindustryandweakerdemandfortires.Ontopofthat,theslowdowninglobaleconomicgrowthinmajornationshasaffectedtheoveralldemandforrubber.However,demandforvulcanizedrubberisexpectedtoincreaseinotherindustrialapplications,primarilythegasketandsealsmarket,whichisexpectedtogrowataCAGRof5.7%from2016-2020.

Asia-Pacific, 91.0%

EMEA, 5.3% Americas,

3.7%

GlobalNaturalRubberOutputDistribution(%)

Ø TheAPACregionremainsthehighestproducerofnaturalrubber,withThailand,Vietnam,MalaysiaandIndonesiabeingthekeyproducingnations.

Ø Beingaveryversatilecommodity,rubberisusedintheproductionofmanyindustrialandconsumergoods,rangingfromcartiresintheautomotiveindustry,torubberglovesinthemedicalandF&Bindustriesaswellasindustrialcomponentssuchasgasketsandwashers.

-800 -600 -400 -200

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2014Year

2015Q1

Q2 Q3 Q4 2016Q1

Q2

IndustryOutlookandAnalysis

AnalysisBreakdown

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Porter’s5ForcesAnalysis Ø PowerofBuyers:VulcanizedrubberisusedinawidevarietyofproductsfromcartirestoglovesforuseinthemedicalindustryaswellastheF&Bindustry.Beingafundamentalcomponentofmanyfinalproducts,thedemandforvulcanizedrubberwillbeinelastic.

Ø PowerofSellers:Thebargainingpowerofvulcanizedrubbermanufacturersislowduetothelargenumberofproducersandthecompetitivenatureofthemarket.

Ø DegreeofRivalry:MajorplayerssuchasTopGlove,Hartalega,Kossan,Supermax holdthemajorityoftherubberglovemarketshare.Boyd,Dana,ElringKlinger AG,Federal-Mogul,Flexitallic,andSKFGroup arealsokeycompaniesinthegasketandsealsindustry.Withwell-establishedglobal,regional,andlocalsuppliers,companiesinthevulcanizedrubberindustry mayfacestrongcompetition.

Ø SubstituteThreat:Thespecificcharacteristicsofvulcanizedrubber,namelyitsstrengthandelasticity,makeitasuitablematerialforitsspecificusesincartires,rubberglovesandrubbergaskets,arenottobefoundinothermaterials.

Ø LikelihoodofNewEntry:Therearerelativelyhighbarrierstoentryinthisindustryduetofactorssuchashighcapitalexpenditure,longset-uptimeandlargeeconomiesofscale.

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Power of Buyers

Power of Suppliers

Degree of Rivalry

Substitute threat

Likelihood of new entry

RegionalLandscapeandAnalysis

APACTheUAEisobservedasa

potentialgrowthopportunityintheGCCregion

AmericasEMEA

BubbleChart

Ø Growingdemandforvulcanizedrubber: ThedemandforvulcanizedrubberarticlesfromtheGCCcountrieshasremainedstrongandgrownsteadily.

Ø CountriessuchastheUAEandSaudiArabiaareexpectedtomaintainsteadyannualgrowthduetohigherdemandforrubberglovesandrubbergasketsinindustrialapplications.

Ø EmergingopportunitiesinASEANexportmarket:Despitethestabledemandforvulcanizedrubber,theGCC’simportvolumefromASEANisconsideredrelativelysmallascomparedtomajorplayerssuchasGermany.

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ASEANExportstoGCC:GrowthandVolumebyCountry

Negative Growth

High Export Volume

Low Export Volume

Malaysia

Philippines

SingaporeThailand

Vietnam

Indonesia

Positive Growth

Population:9.1millionTotalGDP(2015):US$370.3billionVulcanizedRubberArticlesImport(2014):US$20.52billion10-YearCAGR:7.4%UAE

Cambodia

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25

2009 2010 2011 2012 2013 2014

OpportunitiesSpotlightandAnalysis

WhyUAE?

MedicalIndustryØ WiththedevelopmentoftheDubaiHealthcareCity(DHCC),ahealthcarefreeeconomiczone,themedicalindustryin

theUAEisasignificantpotentialareaofgrowthaspartoftheUAE’seffortstodevelopitselfasamedicaltourismhub.Ø Thedemandforrubberglovesisdrivenbyimprovementinhealthcare,increasingawarenessofhygieneamongboth

patientsandhealthcareproviders,healthcarereformswithmorestringentregulationsfollowingoutbreakoftheMiddleEastrespiratorysyndromecoronavirus(MERS-CoV).

RubberGasketandSealsIndustryØ TheUAE’seconomyisprimarilymadeupofcrudeoilexports,whichisakeydriverofdemandforrubbergasketsand

sealsusedinstoragefacilities.Ø Thegovernment’seffortstodiversifytheeconomybeyondcrudeoilthroughthedevelopmentofthemanufacturing

industryfurthersupportsthepotentialforgrowthoftherubbergasketindustry.

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WehaveshortlistedtheUAEasakeypotentialopportunityforcompaniesinvolvedinthemanufacturingandsupplyofrubberproductsforautomotive,industrialandmarineoffshoreindustries.Rubberproductmanufacturersshouldcloselymonitorandidentifypotentialgrowthintheserelatedindustries.WeareopentoexploringothermarketsintheGCCregionaswell.

Conclusion:

VulcanizedRubberImportsintoUAE(US$billions)

UAEHealthcareSectorValue

-2% 0% 2% 4% 6% 8% 10%

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2011 2012 2013 2014 2015

US$billions %Growth

UAEAutomotiveManufacturingSectorValue

-10% -5% 0% 5% 10% 15% 20%

0.55

0.6

0.65

0.7

0.75

2011 2012 2013 2014 2015

US$billions %Growth

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RobertMacPhersonJuniorPartnerrobert@reciprocus.com

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