INRO keeps eye on weak world rubber prices

INRO keeps eye on weak world rubber prices

KUALA LUMPUR (Reuters): The International Natural Rubber Organization (INRO) said yesterday it has a fund of 90-100 million ringgit ($21.6 million-$24 million) for immediate use to defend weak prices.

"INRO has a usable fund of 90-100 million ringgit for immediate use for buffer stock manager purchases," Ng Kok Tee, INRO's senior buffer stock officer, told Reuters in an interview. It could call up additional funds if required, Ng said.

The producer-consumer group, based in Kuala Lumpur, intervenes in the world markets to help stabilize rubber prices. The group administers the International Natural Rubber Agreement (INRA), the world's only working economic commodity pact.

The producer members are Ivory Coast, Indonesia, Malaysia, Nigeria, Sri Lanka and Thailand. The United States, the world's largest rubber consumer, and the European Union are the major consumer states.

Under INRO rules, the buffer stock manager can stockpile up to 550,000 tonnes of rubber, mopped up from the world's established rubber markets in Kuala Lumpur, Singapore, London and New York.

Ng said the last time INRO bought rubber was in the early 1990s.

"The buffer stock manager has to exercise his judgment before he intervenes in the market," Ng said.

Under INRO rules, the buffer stock manager may buy rubber when the group's five-day moving average price falls to 183 Malaysian/Singapore cents a kg. He must buy at 172.

The price, based on the average price of the previous five days of daily indicator price (DMIP), stood at 190.38 cents a kg on July 7.

The DMIP is calculated from a composite weighted average of natural rubber prices reflecting two currencies (Malaysian ringgit and Singapore dollars) and four grades of rubber (RSS1, RSS3, TSR10 and TSR20) from the four established markets.

Singapore's TSR20 spot price was near a year low at 57.25 U.S. cents a kg.

"Under the normal buffer stock operation, INRO can buy up to 400,000 tons of rubber to stabilize prices. If the need arises, INRO has a mandate to purchase a further 150,000 tons under the contingency buffer stock," Ng said.

INRO has 32 designated warehouses in consuming and producing countries. Delivery is either local or a free on board (FOB) basis.

Ng said INRO had disposed of its entire stockpile of rubber of 240,000-250,000 tons in 1995 under the previous pact.

Ng, previously chairman of the Malaysian Rubber Exchange and Licensing Board, said he was confident that the global rubber pact would stay despite threats of pull-outs by producer members.

"Based on the past experience INRO itself has been existing for 18 years, we are optimistic that the INRA will continue as long as it can," Ng added.

"I think both producers and consumers have benefited from the price stabilization in the pact."

The current pact came into force in February 1997.

Thai, Malaysian and Indonesian ministers will meet on July 24- July 25 to formulate a common stance on whether to withdraw from INRO.

Thailand, the biggest producer, has been unhappy with INRO after failing to convince the grouping to raise market intervention prices.

In Indonesia, the rubber market ignored the news about INRO.

They said November tyre-grade SIR20 was done on Monday night at 28.25 U.S. cents/lb fob Palembang while October rubber was sold at 27.25.

September rubber was sold at 26.00 fob Jambi.

"It's another quiet day. There are no fresh leads and the market has ignored the news about INRO," said one Jakarta-based trader.