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)