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.