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.