Rubber producers state preference for INRO

JAKARTA (JP): Local rubber producers said on Monday that they would prefer the government to maintain its membership of the International Natural Rubber Organization (INRO) because the group was still needed to keep global prices stable.

The Chairman of the Rubber Association of Indonesia (Gapkindo), Daud Husni Bastari, said that withdrawing from INRO, an international cartel of producers and consumers, would cause the group to collapse and would in turn affect the global rubber market.

"We consider INRO to be a good institution ... it is still needed to stabilize international prices," Daud told reporters.

He said that without INRO, the country's position in the global rubber market, which is currently oversupplied and facing low demand, would weaken.

In a recent meeting with the Association of Natural Rubber Producing Countries in Thailand, the Indonesian government said it would remain in INRO, despite Malaysia's recent withdrawal from the organization.

The government said it considered the timing unfit to withdraw from INRO, but added that it might consider doing so should Thailand also decide to leave.

Daud said that if this happened, the organization would fall apart because the three countries -- Indonesia, Malaysia and Thailand -- are the world's major producers of rubber, accounting for 80 percent of global natural rubber production.

"Now that Malaysia has quit, without Thailand and Indonesia, INRO would not exist," he said.

INRO groups 16 importing countries, including the United States and the member states of the European Union, with six producers.

The group, set up 16 years ago to ensure price stability and contain price fluctuations, has the mandate to buy rubber from the open market to boost prices and sell from its buffer stocks when prices rise.

Payments to INRO are based on the size of a country's output and for consumers, on the quantity of imports.

But the level at which it is authorized to intervene in the rubber market has been too low to push prices up during Asia's year-long financial crisis, so that even after intervening in the market in August, prices remained unaffected.

Malaysia, Thailand and Indonesia were angered over INRO's inability to raise prices and charged that it was more inclined to protect consumers than the rubber producing nations.

Malaysia decided to withdraw its membership of the organization in August and Thailand is currently considering following suit.

Price downfall

Rubber prices have slid to a 30-year low and have been trading at around 60 U.S. cents a kilogram since the Asian financial crisis began in the middle of last year.

Daud attributed the price drop to a decline in demand resulting from weak Korean, Japanese and Chinese economies and a labor strike in the U.S.-based General Motors assembly plant, which ended in August.

The summer season in several country's also lowered demand, while several tire factories stocked up on tires between January and March this year on fears of riots in Indonesia.

At the same time as demand fell, supplies from Thailand and Indonesia increased dramatically, spurred on by the sharp drops in the two countries' currencies against the U.S. dollar, which encouraged producers to export in large quantity.

"Areas such as South Sumatra and Kalimantan increased production while prices crept ever downwards," Daud said.

Farmers were tapping rubber trees between three to four times a day, compared to the normal rate of twice a day, so as to benefit from the surge in the U.S. dollar against the local currency.

Gapkindo expects the country's rubber output to reach 1.57 million tons this year, of which 1.5 million will be exported. Exports of the commodity reached about 800,000 tons in the period from January to September, he said.

Last year, Indonesia exported 1.4 million tons of the 1.5 million tons extracted from the country's 3.51 million hectares of rubber plantation. (das)