Rubber producers to propose raising INRO's reference price
Rubber producers to propose raising INRO's reference price
KUALA LUMPUR (AFP): Rubber producers said yesterday they would press for a rise in the International Natural Rubber Organization (INRO) reference price to enhance its market intervention following the current price surge.
"It sure is time to adjust the reference price. We will discuss this at next month's INRO special session," said Sucharit Promdej, executive director of the Association of Natural Rubber Producing Countries.
The executive council of the Kuala Lumpur-based INRO, which yesterday was selling from its stockpile for the 11th trading day to calm prices, is to convene a special session on Aug. 22 to discuss the state of stockpile sales.
A special session has to be convened for every net change of 100,000 tons or more in INRO's stockpile.
As of yesterday, INRO's 220,000-ton stockpile had shrunk by more than 100,000 tons since it began selling on July 8 in what is still perceived as an unsuccessful bid to subdue the sizzling rubber market, where prices have bounced 40 percent in the past three months to six-year highs.
Based on a determined reference price, INRO's six producer and 21 consumer member-nations have set specific limits for the buffer stock manager to buy when rubber prices decline and sell when they rise.
The manager "may buy" when INRO's daily moving indicator price (DMIP) falls to 167 Malaysian-Singapore cents a kilogram (2.2 pounds), but he "must buy" when it hits 157 cents. He "may sell" when it rises to 226 cents and "must sell" at 236 cents.
The DMIP, culled from average prices in the London, New York, Singapore and Kuala Lumpur markets, broke the "must sell" level to 241.46 cents on Thursday.
Shortage
"The current surge was initially due to a fundamental shortage in supply in producing areas, but speculative buying in the later stage has driven up prices to an unrealistic level," said Sucharit.
INRO's sales would have filled the vacuum if the uptrend was purely driven by a supply crunch, he said.
In Tokyo, prices soared as much as 10 yen in early trade. Demand was outstripping supply, particularly in China, Hong Kong and Taiwan, but speculators were fanning the price hike, traders said.
"We have never experienced such a sharp hike since the 1988 run-up, which was due then to the AIDS (Acquired Immunity Deficiency Syndrome) scare," said Sucharit. Then, demand surged for protective gloves and condoms.
INRO officials said the organization was prepared to unload the entire stockpile if necessary to calm the market.
But analysts said it would very soon run out of rubber if the price surge continues unabated.
Malaysian Primary Industries Minister Lim Keng Yaik, baffled by the historic surge, said on Thursday that it was a clear proof "as to what can happen if commodity prices are depressed at low levels for too long."
"Consumer members of INRO should study the reasons behind the surge and give in to the producer members' demand during the negotiations of the new International Natural Rubber Agreement in Geneva in October," Lim said.