Rubber shippers from Thailand, the largest producer, pledged to avoid selling below output costs as suppliers in Asia take steps to halt a slump in prices of the commodity used in tyres. Futures reached a one-week high.
A worker walks atop piles of smoked rubber sheets to be processed at the Thai Hua Rubber Plc's factory in Amnuktong, Rayong province, on Jan 29 this year. (Photo by Bloomberg)
Exporters should not sell ribbed smoked sheet below $1.90 or 62.70 baht a kg as the average output cost for growers in Southeast Asia is about 60 baht, said Chaiyos Sincharoenkul, president of the Thai Rubber Association.
Futures in Tokyo entered a bear market last month as stockpiles in China, the biggest user, rose to a nine-year high. World supplies will exceed demand for a fourth year in 2014, says the International Rubber Study Group. Thailand, Indonesia and Malaysia, which account for 70% of production, have advised members not to sell at prevailing rates and predicted a seasonal drop in output that would be greater than normal.
“Processing plants have not built up enough stockpiles to last through the wintering season,” Mr Chaiyos said in a phone interview on Tuesday. “Supply will tighten even more during the wintering period,” he said. Trees produce less latex during the season, which lasts from February to May in Thailand, he said.
Prices in Thailand rose 1.1% to 70.05 baht a kg on Wednesday, the highest level since Feb 4. That trimmed losses to 53% since the end of 2010 as production increased. Rubber free-on-board at Songkhla fell to 68.50 baht on Feb 6, the lowest since August 2009, according to the Rubber Research Institute of Thailand.
Slumping Prices
International Rubber Consortium Ltd (IRCo), the marketing arm of the group representing government officials, exporters and growers from the top three suppliers, sees prices as “unreasonably” low, it said in a statement on its website Feb 10. IRCo will propose to “accelerate and enhance the implementation of the supply management scheme,” it said.
Futures jumped as high as 230.7 yen a kg ($2,251 a tonne) on the Tokyo Commodity Exchange on Wednesday, the highest level since Jan 31, before closing at 227.6 yen, data compiled by Bloomberg show. Prices plunged 17% this year after losing 9.3% in 2013. Stockpiles monitored by the Shanghai Futures Exchange total 207,658 tonnes, the highest since October 2004, bourse data show.
While a decline in supplies may support prices for now, there are few indications of a significant increase in demand, Navarat Kaewpratarn, a senior marketing official at Future Agri Trade Co, said. The high level of reserves in China signals that demand may remain weak, she said.
Export Restrictions
Asian suppliers failed to agree new curbs last year after reducing exports by 300,000 tonnes in the six months through March, according to the International Tripartite Rubber Council, which represents Thailand, Indonesia and Malaysia.
Production from Thailand has declined as growers in the north and northeast regions stopped tapping because of drought, said Mr Chaiyos, who is an executive director of Sri Trang Agro-Industry Plc, the country’s largest listed rubber exporter.
Output in Thailand will probably be about 4 million tonnes this year, little changed from 2013, as losses during wintering will be countered by gains in new plantation areas, said Mr Chaiyos. Exports will be little changed at about 3.4 million tonnes and local consumption may reach 550,000 tonnes, he said.
Production in Thailand increased in the past three years and was 3.86 million tonnes in 2013, according to the Office of Agricultural Economics. The global surplus may be 241,000 tonnes in 2014 compared with 384,000 tonnes last year, the Singapore-based International Rubber Study Group estimates.