Asia's rubber trade seen to be at standstill

Asia's rubber trade seen to be at standstill

SINGAPORE (Reuters): Asia's rubber trade is likely to maintain its rangebound state this week, with the political situation in Indonesia and the performance of regional currencies the main factors for business, traders said yesterday.

"The market has been very quiet in the past one-and-a-half weeks. There are too many uncertainties in this region (which are) keeping players largely on the sidelines," said one dealer at a commodity house in Singapore.

Regional traders were not upbeat over the gains posted by rubber exchanges in Japan last Friday, which rose on the back of the U.S. dollar's rise against the yen and hopes the spot February contract will expire on Monday at relatively high levels.

"Demand is still looking pretty quiet in the coming week, but...not if there is a dramatic change in Asian currencies or Indonesia," the dealer added.

Indonesia, the world's second largest rubber producer after Thailand, is battling its worst financial crisis in decades.

A sharp plunge in the Indonesian rupiah has increased prices, hammered companies with heavy foreign debt obligations and raised fears of mass unemployment.

Riots have rocked several Indonesian towns, although traders said rubber trading has not been affected so far. Indonesia's 1996 rubber output stood at 1.54 million tons, of which 90 percent was exported.

"I"m not very optimistic this year," A.F.S. Budiman, executive director of the Rubber Association of Indonesia, told Reuters last week. "Consumers have been buying because of fears over what might happen in Indonesia."

But regional traders said the situation in Indonesia appears to be calming down and was looking "better and more positive."

"Prices are holding as it seems things are stabilizing, but demand is still pretty weak across the region," said another Singapore-based trader.

`Indonesian traders said prices for the tire-grade SIR20 were likely to stay at the same level this week.

"The market is very, very quiet because demand is poor. Traders are predicting this trend to continue this week because buyers have built up stocks," said one trader in Jakarta.

Traders said that most players were looking for fresh leads, adding that the rupiah's movement remained the important issue in the Indonesian rubber market.

Thai traders, taking a wait-and-see attitude, were nervous about speculation in the Tokyo rubber futures market.

Thailand is the world's biggest producer of natural rubber.

"The speculation confused the market and we cannot forecast which way prices will go. So it is better for us to wait and see," a Bangkok-based trader said.

The market this week may be inactive as buyers felt it was too risky to take long positions immediately, especially in nearby months, Thai traders said.

"However RSS 3 rubber for July/August delivery which is at 83 U.S. cent a kg is still too cheap. It should be around 85-86 cents," a dealer in the Thai rubber center of Hat Yai said.

In Malaysia, traders saw a directionless market.

"I think it'll still be currency play and the prices will possibly move in a very tight range," one said.

Sellers adjusted their quotes through the whole of last week just to keep trade moving, traders said.

"The market is still rather weak, although the fundamentals look all right with the return of rains and the approach of wintering," a dealer said in Kuala Lumpur.

In Indonesia, March/April tire-grade SIR20 was quoted at the end of last week at 38.75 U.S. cents/lb FOB Medan, Palembang and Surabaya.

The benchmark March RSS1 buyer was at 306 Malaysian cents a kg at the close of trade on Friday, up 6.50 cents from the previous week. March SMR20 was up a cent at 314 a kg.