World rubber body's future hangs in balance

World rubber body's future hangs in balance

KUALA LUMPUR (Reuters): The world rubber agreement, apparently doomed by the withdrawal of two large producers upset over low prices, faces its moment of truth this week as the last commodity pact with economic clout.

Members of the International Natural Rubber Organization's (INRO) governing council will consider the fate of the 19-year- old pact, threatened by the exit of Thailand and Malaysia, in talks on Thursday and Friday in Malaysia's capital.

"We are not very optimistic but we remain positive about the outcome. We believe there is still room for discussions," INRO deputy executive director Gerard Loyen told Reuters.

The council meeting will be preceded by informal talks on Monday and committee meetings on Tuesday and Wednesday.

Industry officials say INRO is doomed to collapse with the withdrawal of Thailand and Malaysia which together account for more than 50 percent of world's production.

Malaysia leaves INRO on October 15 while Thailand has said it will quit. Both countries say INRO has failed to shore up rubber prices, now at long-term lows. "We still have some time and hope they will reconsider," Loyen said.

Taking a cue from Thailand, Malaysia has said it will set up its own market-supporting scheme by buying up rubber from its thousands of small producers and maintaining buffer stocks.

Bangkok this year tried to complement INRO by setting up its own market intervention but without much success.

Indonesia, the world's largest producer after Thailand, has said it would like to stay in INRO. But it would have to contribute more to the producers' share of INRO's budget.

INRO contributions are based on a member's number of votes, which reflect the quantity of rubber it exports or imports.

INRO said last month that none of its producing members had contributed towards its appeal for 200 million Malaysian ringgit ($53 million) for a new round of rubber intervention, preventing it from stepping into the market due to a lack of funds.

Malaysia has said it will not pay up. Indonesia is in the process of paying some 35 billion rupiah ($4 million), trade sources said.

INRO, set up in 1980 to stabilize world rubber prices under the U.N. Conference on Trade and Development (UNCTAD), groups six rubber producing and 16 consuming countries.

The producers are Thailand, Indonesia, Malaysia, Ivory Coast, Nigeria and Sri Lanka. Consumers are the United States, Japan, China, Germany, France, Austria, Belgium, Luxembourg, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Spain, Sweden and Britain. Belgium and Luxembourg are considered as one.

Consuming countries, which have benefited from low prices but want long-term price and supply stability, support INRO.

"In the long term, if low market prices eventually force producers to abandon rubber output and caused a sharp bounce in rubber prices, that is troublesome," said an official at the Rubber Trade Association of Japan.

INRO has historically succeeded in stabilizing rubber supply and prices but more recently failed to prop up sagging prices.

INRO members will have to decide how to liquidate its stocks if the price stabilization pact is scrapped. The stockpile is estimated by traders at more than 100,000 tons, but INRO does not normally reveal its stock levels.

Delegates said council members might be unable to decide on INRO's fate this week and put off a decision to July. Lacking a decision to terminate the agreement, the council will discuss three proposals for adjusting INRO's intervention price range.