New price lows seen for rubber on INRO sale

New price lows seen for rubber on INRO sale

KUALA LUMPUR (Reuters): The International Natural Rubber Organization's (INRO) decision to sell its entire stockpile in eight months may push rubber prices to fresh lows from last year's 30-year bottom, traders said on Sunday.

Twelve months after winding up, INRO, the world's last commodity price pact which tried unsuccessfully to satisfy both consumers and producers, said last week it would clear its stocks at "prevailing market prices" by June, 2001.

This meant an additional 138,000 tons would come on offer in the market any time over the next eight months and allow buyers to quote even lower than now, traders said.

"It'll hamper the market, I can tell you that," said a dealer in Malaysia's capital, the world's third largest rubber producing center and trading center and where INRO met last week.

"Even the 50,000 plus tons traded on the Japanese market can pull the markets down in Southeast Asia," said the dealer. "Here, you're talking about more than 100,000 tons."

Although amounting to no more than two percent of annual world supply, or about a week's consumption, INRO's stockpile has been a drag on rubber prices.

Prices tumbled to 23 U.S. cents per lb last year, the lowest in 30 years, and have recovered little. On Friday, sellers quoted Malaysia's tire-grade SMR20 at around 28 U.S. cents a lb.

INRO disbanded last October after Thailand, the world's largest rubber producer, pulled out of the pact along with Malaysia. The two countries said INRO was not doing enough to help support prices, a charge the organization denied.

INRO initially hoped to sell its stocks at around 71 U.S. cents a kg -- its purchase and carrying costs. But at the end of its council meeting on Friday, it settled for market prices.

It gave chief executive Arch Roberts, in charge of the sale, flexibility in selling six months forward besides spot to get a better deal.

But dealers doubted this would help much.

They said logically, demand for natural rubber should have risen as synthetic rubber would become more expensive in coming months, thanks to the soaring price of crude oil.

"But this is not what we're seeing," said one. "Forward or spot, a bearish market is bearish. Consumers are sitting on enough stocks, so it's their call."

INRO also said member governments could bid for its stockpile unlike in the past when only market players could. Thailand immediately hailed the news, saying it would not mind buying below the market.

"Now that's one producer talking," said a trader. "If the same people who accused INRO of stifling prices are trying to buy its stocks cheap, then it doesn't speak much for sentiment."