Rubber prices to remain high

Natural rubber prices will remain high this year as political tension in Thailand and unfavourable weather in Southeast Asia may disrupt supply and China's demand rises, according to a survey of five analysts and traders.

The supply from Thailand, the world's largest producer, has been disrupted this year partly on account of racial problems in the south of the country, Michael Greenall, analyst at BNP Peregrine Sdn Bhd in Kuala Lumpur, said at a rubber conference in Sanya, China yesterday.

"I expect the prices of natural rubber to remain at high levels this year because the demand is still growing faster than supply,'' said Yew Kong Hing, executive vice president at Thai Hua Rubber Pcl. Prices in Singapore for smoked rubber should stay above 200 cents a kilogram this year compared with an average 210 cents last year, he added.

Rubber prices in Tokyo, up 8 per cent this year, have increased more than threefold since 2001, hurting users such as Goodyear Tire & Rubber Co and Cooper Tire & Rubber Co The demand from China, the world's largest rubber user, will rise by 35 per cent to 6.83 million tons by 2010, according to the China Rubber Industry Association. Natural rubber futures on the Tokyo Commodity Exchange, the benchmark for the commodity, rose by 2 per cent to 272.20 yen ($2.32) a kilogram yesterday. The markets are closed for a public holiday today. The prices of futures for ribbed smoked sheet rubber in Singapore rose by 1.6 per cent to $2.24 yesterday. Prices in Singapore closely track the prices in Tokyo.

The growth in China's demand for natural rubber will continue to outstrip the domestic supply, Fan Rende, secretary-general of the China Rubber Industry Association, said on March 19. Domestic natural rubber production this year may be 600,000 tonne, barring unfavourable weather conditions, and this would be an increase of 1.7 per cent from a year ago, Fan said.

Analysts including Huang Xunjing are sceptical about the forecast being achieved. China's output may drop below 600,000 tonne in 2007 and imports may be higher than the association's estimate. "Because of damage to plantations by Damrey, No. 18 typhoon that hit Hainan province in 2005, China's natural rubber output will take some time to recover to the 573,300 tonne level seen in 2004,'' said Huang, a researcher at China Tropical Agriculture Science Academy in Hainan.

"Our most optimistic estimate is for China to reach 630,000 to 650,000 tons of natural rubber output in 2010,'' Huang stressed.

The deficit between domestic consumption and supply is expected to widen.

Hainan province is China's largest producer of natural rubber.

Violence in southern Thailand is disrupting supply. In one incident, at least 3,000 tonne of rubber valued at as much as 400 million baht ($11.2 million) was destroyed in a warehouse fire in South Thailand in February. The fire may have been lit by insurgents as part of an escalation of violence in the three provinces that border Malaysia.

``The racial problem in south Thailand made no one want to go out and tap trees at 5:30 in the morning,'' said BNP Peregrine's Greenall in an interview on March 15.

Thailand produced about 2.97 million tonne of natural rubber in 2006.

Southeast Asian rubber output also began to fall last month during the so-called wintering season when yields drop, the Indonesia Rubber Association Chairman Suharto Honggokusumo said.

Rubber production in Indonesia, the second-largest grower, may fall to 2.1 million tonne this year from an estimated 2.2 million tonne, according to a report in the Jakarta Post on Nov. 14, citing the Indonesia association's vice chairman, Asril Sutan Amir.

Suharto said it's still too early to tell how production will be affected. ``Initially, we heard El Nino would extend well into 2007, and now we heard La Nina is coming,'' he said. ``It's quite confusing in terms of how production will be affected by weather.''