Malaysia rubber market seen languishing

Malaysia rubber market seen languishing

KUALA LUMPUR (Reuters): After a lackluster 1997, Malaysia's
rubber market is showing no sign of revival and experts say there
may be no rebound in 1998.

A sharp fall in the value of the Malaysian ringgit since the
middle of this year has boosted prices of all local commodities
except rubber.

The situation is unlikely to change much in 1998 because of
weak demand and a sluggish economy, traders said.

"There are no assurances coming from the market," said Dave
Khoo, head of dealing at KL Trading, a rubber broking house in
Kuala Lumpur.

The benchmark Ribbed Smoke Sheet 1 (RSS1) out of Malaysia, a
rubber grade popular with shoe and glue makers, fetched an
average of 350.40 cents (91 U.S. cents) a kg through 1996.

But for the current year, the grade is only estimated to be
worth an average of 255 cents a kg, down 27 percent, Khoo said.

The government's annual economic report, released in October,
said the price of the RSS1 is expected to fall by 21 percent this
year.

Standard Malaysian Rubber 20, a grade used primarily by tire
manufacturers, was valued at an average 329.55 cents a kg in
1996. But this is expected to fetch an average of 25 percent less
in 1997 at around 248 cents a kg, Khoo said.

"Given the present state of the economy, I wouldn't dare to
even say if the current price level could be retained next year,"
Khoo told Reuters.

The government has forecast a further dip of 4.5 percent in
the price of the RSS1 to 265 cents for 1998.

It has also forecast a 22.7 percent fall in the total export
value of rubber to 2.714 billion ringgit ($710 million) in 1997
from the 3.509 billion in 1996. In 1998, the value is forecast to
fall by another 9.2 percent to 2.464 billion.

Traders said apart from weak global demand for natural rubber
and the growing reliance on synthetic rubber, the troubled
economies of Asia will pose more problems for the natural rubber
industry in 1998.

The Malaysian economy was been dealt a sharp blow this year
from a sell-off of both the ringgit and local stocks in the
aftermath of Thailand's financial turmoil.

Since July, the ringgit has lost more than 35 percent of its
value while stocks have fallen by more than 50 percent.

But Thailand and Indonesia, the world's largest producers of
natural rubber, are also beset by economic problems and are
likely to sell their rubber at prices far lower than could be
matched by Malaysia, traders in Kuala Lumpur said.

"The way I look at it, Thailand and Indonesia are going to
sell most of the rubber in 1998, and we're going to be left with
the bits," said the chief dealer of another rubber brokerage in
Kuala Lumpur who declined to be identified.

The economic situation is also expected to squeeze Malaysia's
rubber production.

Production totaled 1.08 million tons in 1996. The government
expects it to fall to 1.01 million in 1997 and 962,000 in 1998.