New global rubber pact can reduce price volatility: INRO
New global rubber pact can reduce price volatility: INRO
KUALA LUMPUR (AFP): The new international rubber pact finally adopted in Geneva last week could help reduce price volatility and benefit both the world's natural rubber producers and consumers, officials said yesterday.
"Producers now have the assurance that there is a buffer stock and a higher floor price to encourage continued increased production and replanting," said James Hegarty, buffer stock manager for the International Natural Rubber Organization (INRO).
Consumers, on the other hand, would be assured of a steady supply, said Hegarty, who had just returned from the Geneva talks, as uninspired Asian traders dismissed the pact as irrelevant amid rubber's current bouyancy.
Last Friday, 31 countries accounting for 90 percent of the annual US$4.6-billion world natural rubber trade adopted in Geneva the third International Natural Rubber Agreement (INRA III) aimed at stabilizing prices after two weeks of negotiations.
The four-year agreement, with provisions for a two-year extension, was adopted after intensive last-minute consultations by conference president Peter Lai to iron out disputes over the price review mechanism.
The new pact will be presented on April 1 for ratification at the UN headquarters in New York and succeeds the 1989 INRA II when it expires on Dec. 28.
The success of the negotiations, conducted under the auspices of the UN Conference on Trade and Development (UNCTAD), was the culmination of a year of protracted negotiations that had threatened to wreck the 14-year-old pact.
"Both sides are happy as it is a win-win situation," Hegarty said in an interview.
"The fact that it is a four-year pact instead of five as in previous pacts, was also a compromise," he said.
Stabilization
The pact will help stabilize prices, which have since the second-half of last year shot through the roof, at a level that reflected rubber's demand-supply fundamentals, Hegarty said.
"The run-up in January, particularly, was quite speculative and perhaps with the pact in place we will see a return to fundamentals," he said.
While consumers rejected producers' demands for a minimum five percent increase in the reference price, they have agreed to raise the "floor price" from 150 Malaysian-Singapore cents a kilogram (2.2 pounds) to 157 cents.
But if INRO's daily market indicator price (DMIP) remained as high as it had been recently, the reference price, now fixed at 196.84 cents, will be raised by five percent to 206.68 cents at the next 15-monthly review due on Aug. 2.
The reference price is used to guide the buffer stock manager's market intervention operations.
But INRO's DMIP has shot up to 345.56 cents on Tuesday from 273.93 cents in December.
Under the new pact, the reference price will be reviewed every 12 months instead of 15 previously.