By Rattaphol Onsanit
Dec. 4 (Bloomberg) -- Thailand, the world’s biggest rubber producer, will ask Indonesia and Malaysia to agree to buy the material from farmers at guaranteed prices as the commodity tumbles to a five-year low.
“We are looking at the pros and cons and will discuss that with the other two countries,” Somchai Charnnarongkul, director- general of the Thai farm ministry’s department of agriculture, said in a telephone interview today.
Rubber has plunged 70 percent from a 28-year high in June as the U.S. recession cuts sales by automakers, denting demand for tires. Thailand, Indonesia and Malaysia supply 70 percent of the world’s natural rubber.
“I don’t think this mechanism will cause the price to spike up,” Felix Yeo, trading manager at a Singapore unit of Marubeni Corp., said today by phone. “The auto industry is in a critical stage and historically rubber is more driven by demand.”
The three countries will discuss price measures on Dec. 11 in Bogor on Indonesia’s Java island at a meeting from Dec. 10 to 13, according to Yium Tavarolit, an official at the International Rubber Consortium Ltd., organizer of the conference.
“We think prices below $1.35 a kilogram warrant proactive measures by producing countries,” Somchai said. Thai RSS-3 grade rubber was quoted at 36.25 baht ($1.02) a kilogram on the Thai Rubber Association’s Web site today.
Malaysia “is not initially pleased about” the plan while Indonesia “is not blocking” the proposal, Somchai said.
Rubber for May delivery fell as much as 10 percent to 105.6 yen a kilogram ($1,135 a metric ton), the lowest since May 2003, on the Tokyo Commodity Exchange today. The contract traded at 106.7 yen at 2:25 p.m. Tokyo time.
Court Ruling
Thailand has as much as 5 billion baht in funds to help support prices, said Theerachai Saenkaew, the deputy farm minister who was ousted Dec. 2 after a court ruling prompted an end to his government. He spoke by phone today.
Thailand, Malaysia and Indonesia agreed in principle on Oct. 29 to jointly reduce output by as much as 215,000 tons mainly by replanting trees to delay production. The plan will cover a total of 169,000 hectares, consisting of 55,000 hectares in Indonesia, 64,000 in Thailand, and 50,000 in Malaysia.
The nations, whose producers are represented by the International Rubber Consortium, harvest about 7 million tons a year. Rubber trees take about six years from planting to the first tapping and produce for about two decades after that. The three-country program, which will target older trees, should help curb global supply while the new saplings mature.
To contact the reporter on this story: Rattaphol Onsanit in Bangkok at ronsanit@bloomberg.net
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