Indonesia wants Thailand, Malaysia to agree deeper rubber cuts

Indonesian rubber producers want growers in Thailand and Malaysia to deepen planned output cuts next year beyond the 215,000 metric tonnes agreed in October after the commodity tumbled to a six-year low.

“We’ll propose an output cut bigger than 215,000 tonnes for next year,” said Asril Sutan Amir, vice chair of the Rubber Association of Indonesia, or Gapkindo, before a meeting today in Bogor, Indonesia.

Producers from the three countries, who supply 70% of the world’s natural rubber, are in Bogor to discuss measures to curb the price slump. Thailand said last week that it may ask Indonesia and Malaysia to agree to buy material from farmers at guaranteed prices.

“It is going to be difficult to gauge the magnitude of output cuts needed to help the price,” said Suryadi Mulya, director of CV Dramaga, a Bogor-based rubber exporter. “The problem we’re facing now is a drop in demand. It is no longer in the supply side.”

Rubber futures have plunged 70% since reaching a 28-year high in June as the US recession cuts sales by automakers, denting demand for tires. Futures for May delivery in Tokyo slid 1.8% to close at 110.0 yen (US$1.20) a kilogram. Prices reached a six-year low of 99.8 yen on December 5.

Gapkindo urged Indonesian exporters to ship rubber at US$1.35 a kilogram, a premium to the current price, Amir said. Rubber may fetch US$1.35 a kilogram in the first quarter of 2009 and US$1.50 in the second as producers reduce tapping and replant trees, he said.

The group sees US$1.5 a kilogram as “fair price,” he said.

2004 Level

Standard Indonesian rubber sheet for one-month delivery from Belawan in North Sumatra, Indonesia’s largest commodity port for overseas shipments, fell 3.4% to US$1.15 a kilogram yesterday, the lowest since July 2004.

Thailand, Malaysia and Indonesia agreed in principle on October 29 to jointly reduce output by as much as 215,000 tonnes mainly by replanting trees to delay production. The plan will cover a total of 169,000 hectares, consisting of 55,000 hectares in Indonesia, 64,000 hectares in Thailand, and 50,000 hectares in Malaysia.

The three nations, represented by the International Rubber Consortium Ltd, harvest about 7 million tonnes annually. Rubber trees take about six-years from planting to the first tapping and produce for about two decades after that.

 

Category: Business