Tuesday, October 4, 2011

Thailand to slash rubber output as price sags

BANGKOK: Top rubber producer Thailand aims to cut output by 3.5 percent this year and will urge Indonesia and Malaysia to follow suit in a bid to prop up prices, which have fallen about a third since hitting record in February, industry officials said on Tuesday, Oct 4.

Thailand's move, which involves replanting ageing trees, could offer much-needed lift to Tokyo rubber futures , after prices plunged to a one-year low around 289 yen ($3.8) a kg last month on growing fears about the global economy.

"I would expect it to be a coordinated effort coming from Thailand, Indonesia and Malaysia. This would be something similar to what happened in 2008," said Ker Chung Yang, analyst at Phillip Futures in Singapore.

"I think, certainly you boost the prices. I think the reasonable support will be around 300 yen level."

Thailand, also the world's largest exporter of rubber, plans to reduce annual rubber supply by 120,000 tonnes starting this year, with the government planning to offer incentives to farmers to cut unproductive rubber trees.

Rubber trees take up to seven years to mature and produce latex after planting. Thailand is forecast to produce 3.35 million tonnes of rubber in 2011, up from 3.25 million last year.

"We aim to cut rubber supply to push up prices by encouraging farmers to cut down and replant rubber trees on 400,000 rai (64,000 hectares), starting from now," said Jirakorn Kosaisawe, director general of the Department of Agriculture.

"And we would ask for cooperation from Indonesia and Malaysia to take similar action."

Asked if Indonesia plans to cut exports, Suharto Honggokusumo, executive director of the Indonesian Rubber Association (Gapkindo), could not give an answer beyond saying that its management will have a meeting this Saturday.

He said Indonesia will produce around 2.9 million tonnes in 2011 versus 2.74 million last year, though the winter harvest -- usually lasting from July until September -- came late this year, starting in August and will end in late October.

"The international price is still very high. I don't think this will send prices higher," he said adding that there is still a global deficit this year.

Government officials from Indonesia and Malaysian were not available for comments.


In 2008, Thailand committed itself to cutting down and replanting rubber trees on 64,000 hectares to reduce supply the following year, although it eventually cut down only 16,000 hectares as prices had rebounded by mid-2009.

Indonesia and Malaysia also announced similar plans in 2008. The three countries account for 70 percent of global rubber production.

Jirakorn said the Thai government would pay farmers 16,000 baht ($512) per rai (0.16 hectare), up from the current 11,000 baht, to encourage them to cut down ageing rubber trees.

"We already have the money collected on rubber exports, around 15 billion baht, so we can start the plan right away," Jirakorn said, referring to the so called "cess money levy".

The cess levy is money collected from exporters at progressive rates depending on the price. It goes into the Rubber PLANTATION [] Aid Fund, which pays farmers compensation to support them until their trees are mature.

The usual drop in supply during the upcoming dry season together with the replanting plan should stop the benchmark Thai rubber sheet (RSS3) falling below $4.0 per kg this year.

It stood at $4.1 on Tuesday, having fallen from a record of $6.4 in February.

Some traders were sceptical the plan would work, but Tokyo rubber futures ended higher to regain 300 yen a kg on Tuesday, encouraged by the Thai plans.

"We're getting used to this sort of measure and I don't think it will have a big impact on prices," said a trader in Thailand's Hat Yai rubber centre.

"You can see that the top producers did not really impose the measure in 2009 and rubber prices rebounded finally because of fundamental factors, supply and demand."

Traders said physical rubber prices could easily rally now due to the seasonal final-quarter drop in supply and prospects of strong Asian demand.

"This sounds like posturing from the Thais. They just want the market to go higher with these statements. Markets should not be manipulated this way," said a Malaysian rubber trader in Kuala Lumpur. - Reuters

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