Thailand, Malaysia support $ 1.50 per kg rubber floor price plan; futures slide

Thursday, 2 October 2014 00:03 - - {{hitsCtrl.values.hits}}

SINGAPORE/KUALA LUMPUR (Reuters): Thai and Malaysian rubber producers have thrown their support behind an Indonesian proposal to set a $1.50 per kg minimum on prices as the world’s top growers attempt to keep their market from being pulled lower by a deepening glut. But rubber futures in Tokyo and Singapore slumped on Wednesday to the lowest levels since 2009, suggesting the producers may need to take more drastic measures.

Previous efforts to shore up prices by the three Southeast Asian producers – who account for more than 70% of global natural rubber output – have had little success in the face of abundant supply and weaker demand from top consumer China. Indonesian rubber producers have stopped offering tyre-grade rubber cargoes because prices kept falling, said a trader in Jakarta. Indonesian SIR20 tyre grade, usually the cheapest in Southeast Asia, is currently around $1.40 per kg, below production costs of between $1.60 and $2 per kg, he said.

“Most of the Indonesian producers cannot follow the downward market level so they prefer to wait,” the trader said. In Malaysia, the benchmark SMR20 grade is being offered at between $1.44-$1.45/kg, said a trader who thinks the price floor plan will not work. “How can one set a price level and force people to follow it if demand is weak?” the Malaysia-based trader asked. In Vietnam, another major producer, offers for the common grade SVR3L eased to the equivalent of $1.485 per kg on Wednesday, from $1.495 on Tuesday, traders said. Vietnamese exporters have not implemented or signed on to any floor price plan so far, the traders said. Rubber futures slump Nonetheless, rubber groups in both Malaysia and Thailand said they will support a plan by the Indonesian Rubber Association (GAPKINDO) seeking to get producers and exporters to agree not to sell rubber below $1.50/kg. “We have already sent the GAPKINDO letter to our members to ask for their cooperation, to not offer their rubber below $1.50 per kg,” said a Thai Rubber Association official who declined to be named because she was not authorised to speak with media. “I think this measure will prevent natural rubber price from falling further and revive market sentiment,” the official said. Salmiah Ahmad, Director General of the Malaysian Rubber Board, said her group is also supporting GAPKINDO’s plan. Markets in top rubber consumer China are shut for a week-long public holiday, putting further pressure on the market. The benchmark March rubber contract on the Tokyo Commodity Exchange slumped more than 4% to as low as 175.5 yen ($1.599) per kg, the lowest since July 2009. The front-month rubber contract on Singapore’s SICOM exchange for November delivery fell to as low as 137.40 U.S. cents per kg, also its weakest since 2009. Indonesia, Thailand and Malaysia, which are grouped under the International Rubber Consortium, last acted jointly in 2012-2013, agreeing to cut exports by 300,000 tons, or about 3% of 2012 global output. Rubber prices rose temporarily in response to the earlier plan before sliding again due to fears that the debt crisis in Europe could derail demand. Indonesia, the world’s No. 2 producer, then publicly called for the pact to be discontinued, saying it was not the best solution under the circumstances. The most recent price decline has hit farmers in Indonesia, forcing them to take other jobs. “Farmers are suffering the most, so they move to other jobs. One kilogram of rubber cannot buy rice anymore. Maybe they will now go to work in the palm oil plantations,” said an Indonesian rubber trader.