Southeast Asian rubber trade affected by currencies

Southeast Asian rubber trade affected by currencies

SINGAPORE (Reuter): The Southeast Asian rubber market will take its cue from the region's wobbly financial markets this week, especially after regional currencies fell to fresh record lows, traders said yesterday.

But buying is seen remaining weak since most of the major consumers have locked in their coverage and will not have to enter the market over the next few weeks, they said.

"People are still talking about the haze, drought and other related things. But currency is the main issue," a dealer in Indonesia said.

"The regional trade will be dominated by the state of the currency market," said a dealer in Singapore.

Indonesian dealers said prices of the benchmark SIR20 rubber should be stable with the trade focused on the next move of the rupiah.

"The rupiah movement will be the issue for this week." a trader said. "The fall in the rupiah has made export prices become more and more competitive. Demand is still slow in general, but there is always a chance prices will rise again because (local) supply is tight."

Traders said SIR20 finished the week at 41.00 U.S. cents a kg FOB Palembang and Medan for November shipment, 40.75 cents FOB Padang, 40.50 cents FOB Jambi and 40.25 cents FOB Pontianak.

In Malaysia, all eyes are on the ringgit, especially after it fell to record low of 3.4080 to the dollar last Wednesday, sparking a sharp rise in rubber prices.

"Everything is going on the currency now," a rubber trader in Kuala Lumpur said. "Some are saying it's going to reach 3.50."

The Malaysian Rubber Exchange and Licensing Board quoted the November RSS1 buyer at 290.50 Malaysian cents a kg at the close of trade last Friday. November SMR20 buyer was seen at 288.50 cents. Both rubber grades rose by 21 cents through last week.

Traders said although Malaysian prices were inflated, they were still competitive in the region.

"On the average, we are still cheaper than Indonesia, so I reckon we are still not too far spaced out," said a trader.

Concerns over the jittery financial markets and the impact of smog shrouding most of the region appear to have eased in Thailand as players turned their attention to the level of stocks in Japan, dealers said.

"The baht seemed to withstand the regional pressure quite well this week. Its fall was rather limited and it moved in a narrow range. It might be in the process of stabilizing," said a trader in the rubber center of Hat Yai.

Thai RSS3 was quoted at 95.00-96.00 U.S. cents a kg FOB Bangkok for January/February shipment and 90.00 cents on the same basis for November shipment.

Traders in Jakarta and Bangkok said supplies may increase as more rains fall in drought-stricken Sumatra island while rubber tappers in Thailand returned to work after a local holiday.

Malaysian dealers said the supply of latex and other materials likewise remained ample with no immediate impact seen from the drought spawned by the El Nino weather anomaly or the smog from forest fires in neighboring Indonesia.

Singapore-based dealers said increased supplies may be bad news for the market.

"Most of the consumers have already bought some coverage. I'd be cautious in this market," one said.

"Offtake has been pretty weak," another trader said.