INRO disputes rattle wary Asian rubber market

INRO disputes rattle wary Asian rubber market

SINGAPORE (Reuters): Growing dissatisfaction over the International Natural Rubber Organization (INRO) among producing nations is showering Southeast Asia's wary rubber market with more uncertainties, traders said yesterday.

"It's not new that Southeast Asian countries threaten to quit INRO and I don't think it can be done very soon, but it makes people nervous," said one Singapore-based trader.

"The market has no clue whether the threats will come true, or INRO will give in and intervene in the market," the trader said.

Malaysia has called on Thailand and Indonesia, the world's top three producers, to consider joining it in quitting INRO. Thailand, the largest producer, voiced similar intent earlier this year.

Despite calls for INRO to intervene in the market, INRO said last week the International Natural Rubber Agreement (INRA) was a price stabilization pact and not a price support agreement as perceived by some quarters.

"I suggest that we need to review our memberships in INRO and perhaps withdraw from the organization together," Malaysia's Primary Industries Minister Lim Keng Yaik was quoted by the official Bernama news agency as saying on Sunday.

Lim, speaking to a meeting in Thailand of ministers from the three countries on Saturday, cited "the ineffectiveness of INRO and the inability of the buffer stock manager to intervene in the market".

Kuala Lumpur-based INRO, which groups major rubber consumers and producers, has a buffer stock mechanism to buy and sell rubber in the market.

But the level at which it is authorized to intervene to buy rubber has been too low to boost prices during Asia's year-long financial crisis.

Continuing slack demand has been slowing down market activities significantly in the past few months and traders said they saw no end for the market gloom.

On Monday, the Japan Automobile Manufacturers' Association (JAMA) said Japan's domestic vehicle production fell 10.0 percent in June from a year earlier to 879,211 vehicles.

"Rubber demand is still falling and there are many uncertainties. I am sure people will just continue to stay away from the market," said one Singapore trader.

Traders expected Malaysian rubber prices to trade in tight ranges this week due to lack of fresh fundamentals, and currency movements were likely to influence market direction.

"It will remain quiet as I don't see any new factors to boost market activity," said a local trader. "We may see more overseas interest though buying will remain small."

Small quantities of SMR20 were traded to the U.K., South Africa and China last week, traders said.

At the close of last week, the Malaysian Rubber Board quoted August RSS1 buyer at 297.50 Malaysian cents (71.85 U.S. cents) a kg, up five cents for the week.

August SMR 20 buyer closed at 249.50 cents, down 4.50 cents. In Indonesia, traders said they expected another bearish market this week.

"It is going to be quiet again. The summer holiday in the U.S. has dampened the market sentiment. Buyers are offering rubber but traders do not show their interest," said one Jakarta-based trader.

The tire-grade SIR20 finished last week at 27.00 U.S. cents/lb fob Medan for September/October shipment. Offer prices stood at 26.75 fob Palembang, Padang and Surabaya.

In Thailand, expectations for more supplies were likely to pull the market lower as demand remained thin, traders said.

At the end of last week, RSS3 for October stabilized at 72 U.S. cents, November at 73 cents and December 74 cents.

In addition to disputes between INRO and producing countries, traders said political uncertainty in Japan and currency movements would also keep players at bay.

Meanwhile, Deputy Agriculture Minister Somchai Sunthornwat in Bangkok Monday Thailand, the world's top rubber producer and exporter, is likely to withdraw from the INRO.

He told Reuters that Thailand was not happy with INRO's inactiveness in supporting sagging rubber prices and would make a decision on INRO by next month.

"We will make a decision after a meeting of the ANRPC (Association of Natural Rubber Producing Countries) next month. But I believe we will say the same thing that Malaysia just did," he said.