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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » FACTBOX:How Asia’s rubber producers intervene on prices

FACTBOX:How Asia’s rubber producers intervene on prices

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
BANGKOK7 (Reuters): The world’s top three rubber producers, Thailand, Indonesia and Malaysia, which account for 70 per cent of global output, announced export curbs and other measures this week in a bid to prop up prices.

The market has been volatile in the past couple of years, with benchmark rubber surging to a record high of $6.40 per kg in February 2011 before falling by more than half recently to $2.75 as global economic problems fuelled doubts about demand.

Here are details of recent intervention schemes:
* The latest plan involves total export curbs of 300,000 tons. Thailand will cut 150,000 tons, Indonesia around 100,000 and Malaysia up to 50,000. The mechanics of the scheme have not been announced.

* The three nations will also cut down rubber trees on a total 16,000 hectares (39,520 acres) to take supply off the market. The area will be replanted but rubber trees take around seven years to mature and produce latex. The scheme is expected to take around 450,000 tons of rubber out of the export market.

* Farmers in Thailand who agree to cut down their trees will get a one-off compensation payment of 16,000 baht ($510) per rai. One hectare is equal to 6.25 rai.

* Earlier this year, Thailand launched a domestic price support plan. The government approved a 15 billion baht budget to buy rubber from farmers and hold it in stockpiles. However, so far it is believed to have bought only around 50,000 tons and that has done nothing to support raw rubber prices.

* In May, the Thai government waived a tariff on re-exported rubber to allow Thai exporters to take delivery on Tokyo Commodity Exchange (TOCOM) contracts to meet orders.

At that point, exporters were said to be struggling to collect rubber at home after rain disrupted supply.

The development helped support TOCOM prices, which had been pushed down by worries about the impact of Europe’s debt problems. In the end, however, the exporters only brought in 300 tons of rubber.

* In March 2011, when raw USS3 almost halved to 95 baht per kg from 180 baht following the earthquake and tsunami in Japan, which disrupted the supply chains of the car industry, Thailand promised measures to push the price back above 120 baht, which equates to around $5.0 per kg of export-grade smoked rubber sheet (RSS3). The market recovered and intervention was not needed. However, 120 baht remains a target for the Thai authorities.

* In late 2008, the top three producers agreed to cut combined exports by 915,000 tons in 2009 when RSS3 fell to $1.10 per kg because of the looming global recession.

Thailand, Indonesia and Malaysia urged exporters not to sell smoked rubber sheet (RSS3) below $1.35 per kg.

They cut 270,000 tons in the first quarter and prices jumped, although that was probably due in large part to the recovery in China’s demand for its car industry. The scheme was quietly shelved in the middle of the year.

* In the 1990s, the International Natural Rubber Organisation (INRO), which grouped rubber-producing and rubber-buying countries including Japan and some European states, pooled money to buy “buffer stocks”, held in warehouses to control rubber supply in the market and keep prices stable.

INRO collapsed in 1999 due to a conflict of interest between buying and selling countries and complaints about a lack of fairness and transparency in managing stocks. ($1=31.5250 Thai baht)
http://www.ft.lk/2012/08/23/factboxhow-asias-rubber-producers-intervene-on-prices/

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
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)
http://www.ft.lk/2012/08/23/top-rubber-producers-to-curb-exports-as-prices-slump/

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