Rubber Supply Cut May Exceed Target as Demand Wanes, Group Says

By Yoga Rusmana

July 27 (Bloomberg) --Thailand, Indonesia and Malaysia, the three-largest rubber producers, may deepen a planned supply reduction this year as the global recession curbs consumption.

“We have to match the reduction with the fall in demand,” Abdul Rasip Latiff, chief executive officer of the International Rubber Consortium Ltd., said without elaborating in an interview in Bali, Indonesia. Demand for rubber, used mostly in tires, may drop by around 1 million metric tons from 2008, he said.

Rubber futures gained 15 percent this month as shippers cut exports and Indonesia said it would reduce output. The three largest producers in December forecast a supply reduction of 915,000 tons in 2009. Bridgestone Corp., the world’s largest tiremaker by sales, on June 25 cut its full-year net income forecast to breakeven as the recession curbs new-vehicle sales.

“We don’t expect demand to go back to the 2008 level,” Latiff said yesterday after a meeting of the group in Bali. “The world economy is still slowing down and not hitting the bottom yet. The only bright stars are China and India.”

Rubber futures gained 4 percent to 187 yen a kilogram at 2:37 p.m. in Tokyo, after earlier touching the highest since Nov. 10. The most-active contract fell 56 percent last year. Prices may range from 160 yen to 180 yen per kilogram until the end of the year, Latiff said.

Still, Asian stocks advanced for a 10th day, driving up the MSCI Asia Pacific Index by 1.3 percent to 109.40 at 2:34 p.m. Tokyo time.

Exports Cut

Thailand, Indonesia and Malaysia, which produced around 7 million tons of rubber last year, reduced output by more than 400,000 tons in the first five months of 2009 from a year- earlier, Latiff said. Exports were cut by 540,000 tons in January to May, compared with a 414,000 ton reduction planned for the first half, he said July 15. The suppliers in December said they planned to reduce shipments this year by 700,000 tons.

Indonesia cut its production target for this year by 12 percent to 2.2 million tons from 2.5 million tons on lower prices and a decline in demand, Asril Sutan Amir, the newly appointed chairman of the Indonesian Rubber Association, said July 23 in Bali.

Indonesian exports may drop this year to slightly more than 1.8 million tons, of which more than 700,000 tons were exported in the first five months, Amir said.

Adverse weather may also threaten supply this year and in 2010, Latiff said.

El Nino conditions may delay the rainy season in Indonesia by two months to December, and create similar conditions in Malaysia, reducing output, he said. El Nino, caused by a warming of the eastern Pacific Ocean, can bring drought in parts of Asia.

In Thailand, rainfall and flooding this month may also decrease productivity, he said.

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net.