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.