Analyst predicts RI rubber will bounce back

JAKARTA (JP): Indonesia will see a robust rubber business in 2000 as the country's production and exports of rubber will increase by respectively four percent and six percent, an analyst said on Monday.

Chairman of the Indonesian Rubber Foundation Harry Tanugraha also predicted that Indonesia would earn higher foreign exchange earnings from its rubber industry this year as the price of rubber was expected to increase to US$1 per kilogram.

He said Indonesia and other rubber producing countries would generally see a steady increase in the demand from major markets such as the United States and Korea as the economic growth of those countries would stimulate the headway of rubber related industries there.

"Indonesia itself, however, will likely switch its main market from the U.S. to China and India in a bid to take advantage of the recent efforts of President Abdurrahman Wahid to rejuvenate our diplomatic relations with these countries," he told The Jakarta Post.

He said there would be a great market opportunity for rubber trading with China and India as the two, which had always imported quite a large amount of rubber to offset their relatively limited domestic supplies, were expected to speed up their economic recovery this year.

Indonesia is the world's second largest rubber producer after Thailand, with total production reaching 1.65 million tons in 1999 as against 1998's output of 1.53 million tons.

Harry said Indonesia's rubber output would increase this year by almost 5 percent to reach 1.71 million tons, while exports would rise by up to 6 percent to between 1.65 million tons and 1.7 million tons.

Indonesia, which has always sold most of its national rubber output overseas, exported 1.6 million tons from 1999's 1.65 million tons output, Harry said.

He predicted the selling price of Indonesia's rubber to improve to an average of $1 per kilogram (kg) this year from 70 cents per kg in 1999, thanks to higher demand and the implementation of the free market mechanism.

"The free market mechanism -- which has replaced the previous price control and intervention by the now defunct International Natural Rubber Organization (INRO) -- will definitely bring a much more favorable business climate as producers and consumers can now reach a reasonable price based on the real supply and demand mechanism," he said.

Harry said the disbanding of INRO, which was accused of hampering the world's rubber trade for 20 years from 1979 to 1999, was the best decision for rubber producers since the organization had failed to secure a stable and good price.

INRO stopped its operations in Oct. last year, following the withdrawal of producer members Malaysia, Thailand and Sri Lanka.

The three countries were angered by INRO's inability to raise prices and charged that the organization was more inclined to protect consumers than the rubber producing nations.

INRO groups six rubber producing countries and 17 rubber consuming countries. The producing countries are Thailand, Malaysia, the Ivory Coast, Nigeria and Sri Lanka and Indonesia.

Rubber importers who hold membership are the United States, Japan, China, Germany, France, Austria, Belgium, Luxembourg, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Spain, Sweden and Britain.

INRO had the mandate to buy rubber from the open market to boost prices and sell from its buffer stocks when prices rose.

Payments to INRO are based on the size of a country's output and for consumers on the quantity of imports.

The group's operations are based on the UN-brokered International Natural Rubber Agreement, scheduled to expire in Feb. 2001.

A team of producer and consumer members is now working to decide the fate of the organization's 140,000 tons of buffer stock.

Harry said independent rubber traders and brokerage businesses were expected to grow tremendously under the free market scheme to create a more dynamic trade.

"The world rubber market will grow tremendously. We expect the existing rubber exchanges in Singapore and Japan to reactivate their operations this year to make the world trade even more dynamic," he said.

"Unfortunately, Indonesia's futures bourse seems to ignore the chance, excluding rubber from its lists and instead making itself busy with currency and stock trading, which are not actually their fields of business," he said. (cst)