Rubber commodity exchanges urged
Rubber commodity exchanges urged
JAKARTA (JP): Indonesia, the world's second largest rubber
producer, should open rubber commodity exchanges in several
cities to protect its large number of small producers, said
the Indonesian Rubber Association.
The association's chairman O.K. Cornel said the association
had asked the former ministry of trade to allow a commodity
exchange in Medan, North Sumatra; where most of Indonesia's
rubber comes from.
"Such an exchange is very important, especially for protecting
small rubber producers which cannot trade directly with
consumers," Cornel said last week.
Cornel promised that, when the proposed Medan commodity
exchange is established, he will help establish other commodity
exchanges in Jambi and Palembang in South Sumatra and in
Pontianak in West Kalimantan.
Indonesia has a commodity exchange in Jakarta, which manages
the physical trade of natural rubber and coffee; it allows
delivery in up to three months.
The existing exchange, however, has no liquidity because most
rubber producers don't want to sell their products through it.
The exchange is managed by the government-affiliated Commodity
Exchange Management Agency.
"What we want is a private commodity exchange, not one run by
the government. The government would do better to provide the
regulations governing the exchange," he said.
He said the establishment of a liquid commodity bourse would
be instrumental in formulating fair prices for natural rubber.
All price changes would be fully publicized, through newspapers,
television and other media.
He said the absence of a liquid commodity exchange in
Indonesia has increased direct sales from producers to buyers.
However, in such circumstances, the producers' position is very
weak; everything is dictated by the buyers, which are mostly tire
manufacturers.
Meanwhile, the association's executive director A.F.S. Budiman
said that reliance on direct trade was unhealthy because it
creates unstable supply-demand conditions and price movements.
He said most local rubber producers making over 1,500 tons per
month would sell directly to manufacturers.
Each buyer has its own list of suppliers, and many small
rubber producers would not be on their lists. Small producers
cannot make direct sales.
Large rubber producers, who are on buyers' lists of suppliers,
make direct sales through middlemen who represent them. Both
producers and middlemen will negotiate according to quality,
volume and price.
In regard to price, they must set up reference prices from a
commodities' futures bourse, and premium and discount prices
against the reference prices.
"To this extent, the direct trade in natural rubber, as
presently constituted, would not exist without trade that goes
through commodity exchanges," Budiman said.
He said direct trade of rubber has increasingly dominated
Indonesia's rubber exports. Of last year's total exports of 1.3
million tons: 800,000 tons were sold by direct selling; 200,000
tons through semi-direct selling; and 300,000 tons through
futures markets.
Cornel warned that when there were no more reference prices,
because of the declining popularity of commodity exchanges in
favor of direct selling, the law of the jungle would rule rubber
trade.
"If producers and consumers trade directly, when there are no
direct reference prices, consumers can demand whatever they like
from producers," Cornel said.
Cornel said the increasing direct trade of rubber has reduced
the activity on commodity exchanges in New York, London and Kuala
Lumpur. The only active exchange is in Singapore, the SICOM,
whose price quotations are used by Indonesian rubber producers
when making direct contracts with buyers.
He said that what Indonesian rubber producers needed was not a
futures bourse but a physical exchange. Most large local rubber
producers are committed to having 10 percent of their produce
traded on the Medan exchange which is being proposed and prepared
by the association. (rid)