Rubber Shippers Buy to Halt 51% Price Slump That Helped Goodyear
Rubber exporters from Thailand, the world’s largest producer, have started purchases on the Tokyo and Shanghai exchanges to shore up prices, according to the Thai Rubber Association.
“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. Shippers will continue buying on overseas bourses “until local prices climb to 120 baht ($3.79) a kilogram, the level the government would like to see.”
Futures have plunged 51 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp. (5108), Goodyear Tire & Rubber Co. (GT) 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, said 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 work with Indonesia and Malaysia to tackle the slump, said 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 yesterday at the 2012 World Rubber Summit in Singapore.
Rubber for delivery in October lost 1.7 percent to end at 265 yen kilogram ($3,338 a metric ton), the lowest settlement price for the most-active contract since Dec. 30, on the Tokyo Commodity Exchange.
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 demand by 400,000 tons in the six months to December after a deficit of 150,000 tons in the first half. China’s consumption 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.
Consumption may grow 7.2 percent to 7.4 million tons this year from 6.9 million tons in 2011, Mary Xu, deputy secretary general of the China Rubber Industry Association said today. Of the total, 4 million tons will be synthetic and 3.4 million tons natural, she said. The government’s commitment to bolster growth and its focus on “the development of the automobile industry” will help boost demand for rubber, Xu said.
Exports of passenger-car tires gained 5.7 percent to 338,000 tons in the three months to March, while truck tire shipments surged 15 percent to 504,000 tons, Xu said. Tire output may rise 5.9 percent to 483 million pieces this year.
China will take steps to “expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” the government said yesterday. The statement builds on Premier Wen Jiabao’s comments published May 20, showing a bigger focus on spurring growth.
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 are expected to slow as trees planted in the northeastern provinces, which are mature enough to be tapped, will generate low yields, said Pongsak. Thailand started plantations in the region about seven years ago, expanding from traditional planting areas in the south. Output from the northeast accounts for less than 10 percent of total output, Pongsak said. “In the south, we can only replant, as there’s no available land for new plantations.”
Thai rubber plantations will face labor shortages as workers from Myanmar leave for home, Pongsak said. “The most important issue in Thailand now is labor - the majority, a large percentage, of rubber workers in Thailand is from Myanmar. Now Myanmar opened up its country so we are afraid workers will return to their country,” he said.
Labor shortages, shrinking acreage and low yields are threatening production in Malaysia, said Aliasak Ambia, president of the National Association of Smallholders. Plantations area has shrunk to slightly less than one million hectares (2.5 million acres) from about 1.7 million hectares 10 years ago, Ambia said. Farmers have been shifting to oil palm, which takes a shorter time to produce yields, compared with the seven years before a rubber tree can be tapped, he said. Yields are low for small growers, he said.
Indonesia will produce 2.95 million tons this year from 3 million tons in 2011 because of a prolonged rainy season, said Asril Sultan Amir, chairman of the Rubber Association of Indonesia. The country exported about 2.5 million tons of rubber last year, he said.
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