Rubber shippers from Thailand, the world’s largest producer, have started purchases on the Tokyo and Shanghai exchanges to shore up prices of the commodity used in tires and gloves, according to the Thai Rubber Association.
“Thai exporters have bought the rubber on the exchanges as it is cheap,” President Prapas Euanontat said by phone from the southern province of Nakhon Si Thammarat. He declined to specify the amount. Exporters will continue buying on overseas bourses“until local prices climb to 120 baht ($3.80) a kilogram, the level the government would like to see.”
Futures have plunged 50 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp. (5108) and Michelin & Cie. (ML) Prices slumped as China, the biggest user, expanded last quarter at its slowest pace in almost three years and Europe struggled to contain its debt crisis. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, according to the China Association of Automobile Manufacturers.
Thailand announced plans last week to buy more than 10,000 metric tons in Tokyo and Shanghai and to continue purchases from local farmers at above-market rates to drive prices higher. The country will also work with Indonesia and Malaysia to tackle the slump, according to deputy farm minister Nattawut Saikuar. The three nations represent about 70 percent of global supply.
“At current prices, producers in Malaysia and Indonesia don’t want to plant new trees,” said Pongsak Kerdvongbundit, the group’s honorary president. “Currently there is no shortage. But when the world economy recovers there won’t be extra supply to fill any gap,” he said in an interview at the 2012 World Rubber Summit in Singapore yesterday.
Global natural rubber consumption is set to expand 3.4 percent to 11.3 million tons this year, while production climbs 3.2 percent also to 11.3 million tons, the International Rubber Study Group said. The Chinese economy will expand 7.9 percent this quarter from a year earlier, according to a Bloomberg survey. That would be the sixth quarterly deceleration after an 8.1 percent expansion in the first three months.
“Prices will react negatively to lower demand,” according to Chris Pardey, chief executive officer of RCMA Commodities Asia, a Singapore-based trading company. Output may top consumption by 400,000 tons in the six months to December after a seasonal deficit of 150,000 tons in the first half. Demand from China may be unchanged from last year at 3.8 million tons, he said this week, lowering an earlier forecast for 2 percent to 3 percent growth.
Rubber for delivery in October lost 3.9 percent yesterday to end at 269.6 yen a kilogram ($3,393 a metric ton), the lowest settlement level for the most active contract since May 16, on the Tokyo Commodity Exchange.
Thai production this year may total around 3.5 million tons as rains in the south, which represents 80 percent of local supplies, have disrupted tapping, Prapas said. The country produced 3.57 million tons last year, according to the Rubber Research Institute of Thailand.
Additional supplies from Thailand are expected to slow as trees planted in the northeastern provinces, which are mature enough to be tapped, will generate low yields, said Pongsak.
“About 30 percent of the northeast plantations will fail, either you won’t be able to tap, or yields will be low because of inappropriate types of soil,” said Pongsak.
Thailand started plantations in the northeast about seven years ago, expanding from traditional planting areas in the south which has limited space. Currently output from the northeast accounts for less than 10 percent of total national output, Pongsak said. “In the south, we can only replant, as there’s no available land for new plantations.”
