Rubber prices to remain high in 1995
Rubber prices to remain high in 1995
KUALA LUMPUR (AFP): Rubber prices have soared to new seven- year highs and are expected to remain buoyant for most of 1995 without global buffer stockpiles to cool the market, officials and brokers said yesterday.
"Based on the strong demand, which is expected to continue to outstrip supply, prices are likely to remain strong in the first half, and perhaps longer," said James Hegarty, the buffer stock manager of the International Natural Rubber Organization (INRO).
Brokers said that with no stockpiles cooling prices, the Kuala Lumpur-based INRO -- which administers a price pact endorsed by six producer- and 21 consumer-members -- would have to let the market find its own level.
INRO's previous 220,000 ton buffer stock was depleted at the height of the rubber bull run towards the end of 1994.
Prices, which have risen another 20 percent since October last year, hit new highs in Indonesia on Friday and in Kuala Lumpur on Monday after last week's rally spearheaded by Singapore and Tokyo.
On Friday, SIR 20 grade rubber hit a record high of 83 U.S. cents a pound, while at noon yesterday Malaysian prices for RSS One January were soaring to new highs of 407.00 Malaysian cents a kilo from 404.5 sen at Monday's close.
Hegarty said INRO's five-day moving average, the rubber market's key indicator, soared to a new high of 326.29 Malaysian- Singapore cents a kilo (2.2 pounds) on Monday from a previous high of 323.26 on June 6, 1988.
The indicator was at 272.35 in the first week of October and 230.77 on July 1 last year.
But brokers said the market yesterday appeared to be nervous, signaling that a correction could be imminent.
Speculation
"The level the prices have risen to now, one would think there has been an element of speculation in the market pushing them up.. so that leaves us wondering how long these prices can be sustained at such high levels. There could be a correction," Hegarty said.
Japanese brokers in Singapore said the price rise had been too quick and could have been fueled by strong speculative interest.
"But for the whole year, a supply deficit will push prices to the 1988 peaks, fueled by strong auto demand in South and East Asia and the economic recovery in Europe and Japan," said Chiaki Furui, managing director of Yutaka Futures Pte. Ltd., a Singapore-based rubber brokerage.
While global output, contributed largely by Indonesia, Thailand and Malaysia, was projected to expand by some four percent this year, consumption was expected to match and even exceed that, Furui said.
"In some countries like Malaysia, there may even be a decline in net output," Furui said.
China, which has a voracious appetite for rubber, topped the list of Malaysian natural rubber importers in the second half of 1994, officials said.
"Unlike 1994 when supply shortages were met by INRO's stockpile sales, there will be no buffer stocks to ease the deficits this year," Furui said.
Traders said the uptrend had raised concern over contract defaults and hoarding.
"There is still rubber available for January shipment, but some were holding back in anticipation of further price rises," said a trader.
At the peak of the bull run at end 1994, traders had estimated defaults totaling about 300,000 tons.