Natural rubber prices likely to remain volatile

Natural rubber prices likely to remain volatile

SINGAPORE (Reuter): Natural rubber prices are likely to remain volatile as tight supplies, falling stocks, weather disruptions and unpredictable buying by China haunts the market, an official of U.S. trader Cargill said yesterday.

Michael Coleman, managing director of Cargill Asia's rubber and latex product line, told a tire conference in Singapore that companies needed to manage risks and adjust to dislocations in a market where the balance between supply and demand was tight.

"The outlook, then, over the long term is for high levels of price volatility to continue," Coleman said.

"I see natural rubber prices higher," he said when asked about his long-term outlook. He added, however, that synthetic rubber would moderate any sharp increases in prices as an alternative source of supply to natural rubber.

Cargill estimates world production of natural rubber this year will reach 6.054 million tons against estimated consumption of 6.065 million tons. Output in 1997 is forecast at 6.175 million tons, virtually matching consumption of 6.174 million tons.

Coleman said governments of rubber-producing nations and the International Natural Rubber Organization (INRO) will have limited clout in stamping out wild swings in prices.

INRO, which groups major natural rubber producing nations, maintains a rubber buffer stock and supports a range for rubber prices.

Coleman said INRO's ability to prop up a price range "has been severely weakened" over the past two years.

World stocks of natural rubber at the end of 1996 would slide to 1.76 million tons from 1.771 million last year. In 1997, they could reach 1.759 million tons, he added.

"The availability and price of synthetic rubber will play an increasingly important role in natural rubber price formation and vice versa," Coleman said.

Unpredictable bouts of buying by China, the world's second biggest consumer, unusual weather such as heavy rains in rubber growing areas in southern Thailand and northern Malaysia and the growing price sensitivity of supplies would add to market volatility, Colemen said.

Clouding the supply picture was falling natural rubber output in Malaysia, where production slid to 1.0 million tons in 1995 from 1.6 million tons in 1988, he added. Thailand also faced the same prospect, he said.

Rapid economic growth in both countries has raised the cost of rubber production while providing alternative employment opportunities to thousands of small farmers if prices fall.

Coleman said the center of natural rubber production would shift to south Sumatra and Kalimantan in Indonesia southern Thailand and northern Malaysia, now the leading producers.

He saw Indonesia's production swelling to 3.7 million tons in 2020 from 1.45 million tons in 1995.

Malaysian output would slide to only 500,000 tons in 2020 from the current 1.09 million tons while that of Thailand would fall to 1.3 million tons from 1.8 million tons last year, he said.