Top rubber producers to curb exports as prices slump

BANGKOK (Reuters): Thailand, Indonesia and Malaysia have agreed to cut down rubber trees and trim exports by 300,000 tons, or about 3 per cent of global production this year, in their latest attempt to shore up slumping global prices.

Global benchmark Tokyo rubber futures jumped as much as 1.2 per cent after the main rubber producing countries announced the measure, similar to a move in 2008 to slash exports by more than 900,000 tons.

This year, Thailand will cut exports by 150,000 tons or 5.5 per cent of expected shipments, Malaysia will hold back up to 50,000 tons and Indonesia around 100,000 tons. The three countries account for 70 per cent of global output.

“We are likely to see some knee-jerk reaction. Prices are likely to be boosted for a couple of days. But it really depends on how the results show up,” said Ker Chung Yang, an investment analyst at Phillip Futures in Singapore.

“Rubber players have been waiting for this news for quite a while.”

Thai Deputy Agriculture Minister Nattawut Saikuar told reporters that besides curbing exports, the producers will reduce supply by cutting down trees covering approximately 16,000 hectares (39,520 acres) in total.

“These measures will be done immediately, not only in Thailand, but also in Indonesia and Malaysia,” said Nattawut, adding that the scheme was expected to take around 450,000 tons of rubber out of the export market.

Senior ministry officials from the three countries had met in Bangkok earlier to discuss new efforts to boost the market after Tokyo futures plunged to their weakest in nearly three years on worries about the health of the global economy, dragging down the price of tyre grades.

Even though rubber imports from their main buyer China were still strong in the first half of this year, weak trade figures and a nine-month low in crude oil imports painted a picture of a slowing economy.

The price of Thai export-grade smoked rubber sheet (RSS3) has fallen by more than half in the past 18 months. Last week it stood at $2.75 per kg versus a record high of $6.40 in February 2011.

Other tyre grades, such as Indonesia’s SIR20, has plunged nearly 30 per cent since January, and fears of defaults by Chinese buyers gripped the physical rubber market.

Nattawut said details of the new plan would be announced later. But in the past, such schemes have involved setting quotas that restrict the volume of rubber individual exporters can ship, and have often proved difficult for governments to enforce.

The producers were expected to meet again in September to review the measures and assess demand and supply.

In December 2008, when the global financial meltdown sent Thai RSS3 rubber to a seven-year low of $1.10 a kg, the three countries agreed to cut exports by a total of 915,000 tons in 2009.

It was never clear how much each country managed to hold back and the policy was quietly shelved in the middle of 2009 after prices began to recover, fuelled largely by rising demand in China, the world’s biggest rubber consumer.

Besides the international measures, Thailand has also tried to prop up prices at home, with little success.

Thailand in January approved a 15 billion baht ($475 million) intervention scheme to buy 200,000 tons of rubber from farmers to push up un-smoked rubber sheet to more than 120 baht per kg. But the government has only bought around 10,000 tons so far and USS3 prices were stuck around 90 baht.

“The least we can hope for is that this will stop the price declining. It is a good thing. 300,000 tons for rubber is quite significant ... with annual demand for rubber at about 10 million tons,” said PT Bakrie Sumatera Plantations CEO Bambang Aria Wisena. “It all depends on the discipline of the players themselves. I want prices above $3 per kg.” ($1=31.53 baht)