Rubber support scheme may not affect market

Rubber support scheme may not affect market

BANGKOK (Reuters): The Southeast Asian rubber market is not likely to be significantly affected by the agreement last Friday on a rubber support scheme by officials from the world's top three rubber exporters - Thailand, Indonesia and Malaysia.

The plan - of which a core feature is a minimum selling price - still has to be approved by ministers and no date has been announced yet for a ministerial meeting.

"I do not think the market would react much to the result of the meeting even it is a positive one as practically speaking, it is quite difficult to implement, and several issues still need to be sorted out," said a trader.

Senior officials meeting in Batam, Indonesia, agreed on a minimum selling price, stock withholding and forward sales, in a bid to help lift natural rubber prices, which are near their lowest for 30 years.

The top three rubber producing countries plan to set a minimum dollar price that would be used as a benchmark for RSS or TSR rubber or both. Each country would agree not to sell below the price.

The three countries together produce around 4.5 million tons of natural rubber, or around 80 percent of world output.

The ministerial meeting could be difficult to organize.

Indonesia says their minister is not available for the whole of December, while Thailand prefers the meeting to be held this month before the Thai election on January 6 on concerns the new government might change the plan.

From a political viewpoint, many players in Southeast Asia said the result of the officials meeting might benefit Thailand, with its election approaching.

The Thai deputy agriculture minister Arkhom Engchuan welcomed the decision by the senior officials of the three countries.

"It is a very, very good news, I am so pleased to know that they can reach agreement. I will definitely tell rubber farmers about the result of the meeting," Arkhom told Reuters by the telephone from Krabi province, his southern hometown.

By asking exporters to hold their stocks, that means additional storage costs for exporters, they said.

"Who will be responsible for our additional costs of holding stocks if the government wants us to keep it by not selling it at the price below the minimum selling price," said another exporter in Surat Thani province, a main Thailand rubber growing area.

"We do need cash-flow to run the business, and we need to sell some shipment in advance in order to get money to keep the business running," said a medium-sized rubber-exporting firm based in Phuket, Thailand.

The senior officials have yet to officially disclose the level of the minimum selling price they have agreed, but some officials from the meeting told Reuters that it would be up to one U.S. dollar per kg for RSS.

For forward sales, Indonesia and Malaysia usually sell forward contracts up to three months, which is different from Thai exporters, who usually contract up to 6 months and some even sell up to one year forward.