Rubber prices expected to remain strong

Rubber prices expected to remain strong

KUALA LUMPUR (AFP): The uncertainty clouding a new global price pact will not dent rubber's current prices which are expected to remain strong due to strong demand for most of 1996, a senior rubber official said yesterday.

James Hegarty, the International Natural Rubber Organization (INRO)'s buffer stock manager, said the "problems" facing the third International Natural Rubber Agreement (INRA III) would have no adverse impact on the rubber market in the short term.

"I remain optimistic that problems faced by INRA III will be eventually resolved," Hegarty told AFP.

INRA III, a global pact hammered out under the auspices of the United Nations in Geneva in February 1995, is in jeopardy after failing to garner enough support by a December 28-deadline set for agreement.

At the expiry of the deadline, only six of INRO's 27 members had signed the pact, which was to have succeeded the 1989-INRA II that expired on December 28 last year.

Only the four key INRO producer members -- Indonesia, Malaysia, Thailand and Sri Lanka -- and two consumers Japan and the European Union -- have signed, and those votes are insufficient to bring the four-year pact into force.

Industry officials said INRA III was now legally non-existent.

INRO would have to requisition a UN meeting to extend the signature-deadline or study the possibility of backdating signatures to save the pact, they said.

With INRA III in difficulty, INRO, which administers INRA through a buffer stock mechanism to stabilize prices, is now in an interim period until the INRO council meets in April.

Hegarty said at the April 22-27 meeting, "we will certainly be able to get a better picture on the future of INRO."

"With prices being where they are now, INRO's difficult situation will have no impact in the short-term," he said.

Prices remained strong for most of 1995, with INRO's daily market indicator price (DMIP), based on a composite currency, hitting a peak of 369.76 Malaysian/Singapore cents a kilogram (2.2 pounds) on February 8 last year.

The market moderated towards late summer with the DMIP easing off to the year's low of 233.07 Malaysian/Singapore cents a kilo on Aug. 3. The DMIP was hovering at the 157.00 cent-level three years ago.

But prices have since rebounded on strong demand, primarily from the United States and Japan, Hegarty said. The DMIP stood at 310.25 Malaysian/Singapore cents on Wednesday.

Tighter supply during the forthcoming festive season coinciding with the cyclical wintering months from February will support strong prices, he said.

During the wintering period, which begins in February or early March and can last for up to three months, rubber trees shed their leaves and production tapers off.

Rubber trading houses, meanwhile, predicted at least a 10 to 15 percent increase in rubber prices for 1996.

"On the average, barring speculative play on the Japanese market, prices could at least be 10-to-15 percent higher than 1995," said Furui Chiaki, a leading rubber trader in Singapore.

"While production is not expected to rise too much, increased offtake from China and India this year could offset a slack in the industrialized nations and take prices to higher levels," he said.