Top rubber producers in bid to arrest falling prices

THE world’s top natural rubber producers are considering joint action to support prices, a year after a similar attempt failed, as tyre grades dip to five-year lows on worries about a slowing economy in China.

Indonesia, Thailand and Malaysia, which together account for more than 70 per cent of global natural rubber output, are examining whether to curb exports, reduce tapping or buy the commodity from farmers in a coordinated fashion to reverse the price declines.

Representatives from the three Southeast nations are meeting this month to try and hammer out a deal. A preliminary meeting of the officials is scheduled, here, this weekend.

An agreement may provide a boost to rubber producing firms such as Thailand’s Sri Trang Agro-Industry but could raise input costs for tyre makers such as Bridgestone Corp, which are the biggest users of rubber.

“I think only producing countries can support prices at this stage,” said Gu Jiong, an analyst at Yutaka Shoji Co in Tokyo.

“Whatever they plan to do, they just need to show their commitment. The mood in the market is very very bad.”

The three Southeast Asian nations, which are grouped under the International Rubber Consortium (IRCo), last acted jointly in 2012-2013, agreeing to cut exports by 300,000 tonnes, or three per cent of 2012 global output.

But rubber prices rose only temporarily before sliding again due to fears the debt crisis in Europe could derail demand. Indonesia then publicly called for the pact to be discontinued, saying it was not the best solution under the circumstances.

With China’s economy cooling more, the declines have accelerated. China’s services sector grew at its slowest pace in almost 21/2 years in January after firms secured a smaller volume of new business, a private survey showed, adding to signs of slackening in the Chinese economy.

A combination of swelling inventory in China, rising output in Asia and heavy selling in Tokyo rubber futures, which set the tone for tyre grades, is outweighing growth in global auto sales that are forecast to rise up to five per cent this year.

Producing nations have already begun responding. India is not a member of IRCo, but the main producing state of Kerala has started buying rubber at above-market prices from farmers after domestic prices plunged to four-year lows.

Indonesia has already urged its farmers to reduce tapping. Thailand, the No.1 producer, and Malaysia, the sixth largest, could opt for export and output cuts, said rubber industry officials in the region. Reuters

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