RI crisis kills hopes for rubber recovery

RI crisis kills hopes for rubber recovery

SINGAPORE (Reuters): Hopes for recovery in rubber prices, triggered by the Ford Motor Co recall of Firestone tires, are fading quickly with market focus shifting to Indonesia's political crisis, traders say.

The crisis could cut the value of the rupiah.

Indonesia's parliament is expected to press for impeachment hearings of President Abdurrahman Wahid on Wednesday, deepening a leadership crisis threatening the country's political and economic future.

The weak rupiah, which saw a 30-month low last month, helped push down Indonesia's SIR20 block rubber prices in April to a 30- year low of below 22 U.S. cents per pound, or 48.50 cents per kilo, for nearby positions.

SIR20 was now seen at around 23.50 cents per pound, or 51.81 cents per kilo, for June shipment, up from around 22.50 cents following Ford's announcement it would recall 13 million Firestone tires due to safety concerns.

The recall triggered hopes for a recovery in the rubber market, battered by an economic slowdown particularly in the United States and Japan.

"It (the recall) was the first bullish news in a long time. Some felt they had to buy as prices are near historic lows," said a trader. "It's psychological, though the amount in question is not large compared with the world rubber market."

However, with the rupiah set to resume its slide, such hopes are fading quickly, especially as rubber and tire inventories in the United States are seen high, if not at historic levels.

"Many have historic inventories," said a trader at a tire maker, adding that tire makers were badly hit by a 20 percent year-on-year fall in U.S. new vehicle sales.

Traders estimated 39,000-50,000 tons of natural rubber was needed to replace 13 million tires, compared with some 1.55 million tons of output for 2000 in Indonesia, the world's second largest rubber producer after Thailand.

According to the U.S. Rubber Manufacturers Association, combined auto and truck tire shipment reached a record 321 million last year, up 1.4 percent from the year before.

The traders also said major tire makers already finished covering their positions for the July-September quarter as the lows last month encouraged many to seal forward deals.

In Thailand, the world's top rubber producer, prices for RSS3 sheet rubber for nearby positions have been rising due to a shortage in raw materials following the wintering season.

But traders said a 20,000 tonne tender for June by Thailand's state-owned Rubber Estate Organization (REO) should alleviate the tightness, which led to shipment delays over the past several weeks.

"This is (the) kind of thing everybody has been waiting for. This should cool down the market," said a trader. "RSS3 prices have been expected to come down anyway as SIR20 has failed to recover as much as expected."

Reflecting a nearby shortage, July was seen offered as high as 64 U.S. cents per kilo, up from 61-62 cents on Thursday. June was no longer available.

RSS3 was commanding record premiums over SIR20 block rubber.

Forward months, however, were offered at lower prices as raw material supply was expected to rise now that the wintering was over, traders said.

Some also voiced skepticism on whether many would take part in the REO tender for the government stocks, which in the past went almost exclusively in China because of the quality.

They also cast doubts on whether China would agree on a plan by the Thai government to buy 50,000 tons at around 61 cents per kilo in a government-to-government deal.