Rubber hits record on strong China demand

Rubber prices reached their highest price in decades today, fuelled by strong demand from China's auto industry and tight supply caused by wet weather in Southeast Asian producing nations.

The Malaysian Rubber Board said its benchmark SMR 20 hit $3.94 per kg at noon, a staggering increase from $1.12 per Kg where it languished in December 2008 during the global downturn.

The level is a record since the price of the SMR (Standard Malaysian Rubber) was set in 1972.

And with the La Nina weather pattern tipped to bring more rain to the major producing nations of Indonesia, Malaysia and Thailand over the rest of the year, prices are expected to continue rising.

Analysts said the prices are being supported as manufacturers scramble to secure supplies of natural rubber, in a generally strong market for commodities as the economic recovery rockets along in Asia.

"A fundamental factor is strong demand from China," a Singapore-based analyst said. "There is very strong demand for vehicles and therefore for tyres in China, and in India as well."

"It's hard to predict the weather but the general feeling is that the La Nina pattern is going to be sustained until the end of the year, how much that affects production partly depends on when the rain is received," he said.

Rain during the mornings, when rubber tappers are at work in the plantations, hampers production, while rain elsewhere in the day is not so problematic.

More than 93 per cent of Malaysia's natural rubber comes from its 265,000 smallholders, who tap less if prices are low and more if prices are high.

Malaysia, Indonesia, Thailand and Vietnam produce three-quarters of the world's natural rubber and account for 93 per cent of global exports. India is the world's fourth largest rubber producer.

Malaysia earlier this year proposed setting up a regional bloc with Indonesia and Thailand to control global rubber prices and keep production steady as the cost of the commodity rises.