Thailand, Malaysia ready to quit INRO over prices

Thailand, Malaysia ready to quit INRO over prices

KUALA LUMPUR (Reuters): Thailand and Malaysia may realize
their long frustrated goal of higher rubber prices by quitting
the very organization which once embodied their hopes, dealers
said yesterday.

Malaysian Primary Industries Minister Lim Keng Yaik said on
Friday the cabinet had approved the country's withdrawal from the
International Natural Rubber Organization (INRO).

He said Malaysia's decision would be officially announced in
Bangkok at a meeting of the Association of Natural Rubber
Producing Countries (ANRPC) on Aug. 20-21.

Lim said Malaysia would present a new price stabilization
mechanism along with alternative strategies for higher rubber
prices.

Thai Deputy Agriculture Minister Somchai Sunthornwat told
Reuters last week his country might also quit INRO but has not
said when.

Both producers have long pinned their hopes on INRO for
preventing price declines.

But now they have turned on the world's only surviving
commodity pact, saying it is unable to support prices.

"Supply of rubber is now tremendous and INRO has done nothing
to reduce it despite this being one its primary objectives," said
David Kay, a rubber dealer with Kuala Lumpur-based K.L. Trading.

"I think if Malaysia and Thailand withdraw now, they may
actually speed up the end of INRO, and without such a mechanism
in place, producers may arbitrarily raise prices which have been
depressed for so long," he said.

INRO has a buffer stock mechanism to buy and sell rubber in
the market. But the level at which it is authorized to intervene
to buy rubber has been too low to boost prices during Asia's
year-long financial crisis.

Traders could not pin down a reason for this.

"Does it have something to do with funding or what? We never
know," said a trader in Jakarta.

"But based on our past experience, even if INRO enters the
market, prices will only rise temporarily. In addition, INRO can
only buy a limited amount of rubber," the trader said.

Dealers were still skeptical on Monday that Thailand, the
world's largest rubber producer, and Malaysia, the third largest,
would risk ending a price mechanism both have struggled to
preserve.