World rubber prices to stay low

World rubber prices to stay low

JAKARTA (Reuters): Huge stocks and relentlessly rising rubber output from top producers Thailand and Indonesia will keep world natural rubber prices depressed for another three years, a senior industry official said.

Suharto Honggokusumo, executive director of the Indonesian Rubber Association (Gapkindo), said prices would only recover if there were concrete moves by the world's top producers to control output or even reduce it.

"If we see a huge stock in the market and rising output, especially from Thailand and Indonesia ... I think it may take three years for prices to reach a profitable level for producers," Honggokusumo told Reuters in an interview late on Thursday.

"But it can only happen if rubber producers can control output. And we're talking about all producers."

Thailand, Indonesia and Malaysia account for more than 75 percent of the world's natural rubber output. Most rubber in the three countries is grown by farmers with small holdings.

Honggokusumo said a reasonable price for Indonesian tire-grade SIR20 was $1 per kilogram. The grade was offered at around 52 U.S. cents per kilogram on Thursday, far below the $1.30 it sold for in 1996.

"At $1 per kilogram farmers can live, they can buy food for their children and put them in school."

Honggokusumo said any rise in dollar-denominated prices in the near future would most likely be induced by a strengthening of currencies in producing countries and on short covering by dealers, rather than by any real demand recovery from end users.

Demand would also be affected by a slowdown in the U.S. economy, which would force tire-makers to cut rubber consumption.

Citing a recent report from London-based LMC International, Honggokusumo said the world's rubber stocks stood at 1.8 million tons by the end of March, down from 2.1 million by the end of 2000 partly due to the sale of 138,000 tons owned by the International Natural Rubber Organization.

"Although stocks have been reduced significantly, they are still very huge and still can't lift the prices," he said, adding that the world's natural rubber output would reach seven million tons this year while demand stood at 6.5 million tons.

In an effort to lift prices, the three producers have been preparing to set a minimum rubber export price, forward sales management and plans for withholding rubber stocks.

Ministers in charge of rubber trade from the three countries were expected to convene and decide on those issues by the end of this month, but their meeting has been delayed indefinitely.

Honggokusumo governments should also try to curb production by replanting or encouraging farmers to switch to other commodities.

"Stock withholding is the only way to lift prices right now, but it can be done only for a short term. For the longer term, we need moves from governments to rationalize output," he said.