Weak Asian rubber market likely this week

Weak Asian rubber market likely this week

SINGAPORE (Reuters): Stabilizing Asian currencies and uncertainties in Indonesia will continue to keep Asia's rubber market weak this week, regional traders said yesterday.

Expectations for a correction in Japan's rubber futures would also likely discourage already bearish sentiment, they said.

Despite an expected drop in Indonesia's 1998 rubber output after last year's severe El Nio-triggered drought, traders said they did not see major impact when demand was thin.

Rubber output in Indonesia, the world's second biggest rubber producer after Thailand, is likely to fall five percent because of the prolonged drought, Indonesian trade sources said yesterday.

They said output would be less than that in 1997, when the country produced 1.55 million tons of rubber.

"Production will fall by five percent this year, or (be) at least stagnant, because of last year's severe drought affecting the archipelago," said one source.

Rubber traders have said supply was tight, especially in South Sumatra province, because some rubber plantations there were burnt. The drought has also affected the flow of latex.

"There hasn't been much demand in the past week. Players only adjusted their positions. I don't see any incentives this week to inspire players to trade," said a rubber trader at a commodity house in Singapore.

As regional currencies continue to stabilize or recover after their tumbles since last July, traders said they did not foresee significant improvement in Asia's rubber trade.

"Firmer Asian currencies make producers reluctant to sell. The currency should play a main role in rubber trade this week," said another Singapore-based trader.

In Thailand, the world's biggest rubber producer, traders said they expected a market lull to continue as major buyers were absent.

The traders said there was a general belief buyers had overbought recently and they expected some correction in prices.

"Sellers wanted to sell but there were no buyers. The market was quiet and I think the lull will continue next week," said a Bangkok-based trader from a major house.

Nearby trade was inactive. Traders said a sharp drop in rubber prices in Tokyo last week made it difficult to trade.

At the end of last week in Thailand, the July/August delivery was quoted at 77-78 U.S. cents per kg and the September/October delivery was at around 79-80 U.S. cents.

Traders said they saw more stability in Indonesia but remained conservative.

"There are still a lot of uncertainties in Indonesia before the (March) elections. Major players are very cautious no matter they have covered their positions or not," said a Singapore-based trader with a Japanese commodity house.

"The feeling is the market may still go down, so why should they buy now? They are waiting for prices to fall further" before they are willing to buy, the trader added.

Indonesian traders said prices of tire-grade SIR20 would likely fall further this week because of poor demand.

Prices were under pressure due to a lack of buying interest, said one trader in Palembang, south Sumatra, Indonesia.

May rubber finished last week at 35.50 U.S. cents/lb fob Palembang and 36.00 fob Medan, traders said.

"Buying interest is poor. I think buyers are holding back ahead of the presidential elections. They want to see the development in the political situation," said one Jakarta trader.

Indonesia's People's Consultative Assembly (MPR) will elect a new president during a meeting that will last from March 1-11.

In Malaysia, the stronger ringgit and poor demand continued to push prices lower, traders said.