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Monday April 26, 2010

Rubber prices reach new highs

By HANIM ADNAN
nem@thestar.com.my


Rise in global demand, tight supply among factors

PETALING JAYA: Rubber is one of the hottest commodities traded so far this year with price rallies seen in most international rubber exchanges.

Tyre-grade Standard Malaysian Rubber (SMR 20) has also been hitting new highs particularly in the past three months and currently trading above the RM10,600 per tonne level.

According to Association of Natural Rubber Producing Countries (ANRPC) director-general Prof Djoko Said Damardjati, tightness in rubber supply would remain an issue amid an upsurge in demand from China and India for their booming auto and tyre manufacturing industries.

“Severe drought, the current wintering season as well as active replanting activities in most major producing countries could affect rubber output.

“Even the preliminary estimates from members of ANRPC indicate that the global rubber supply is unlikely to rise above 6% this year,” he told StarBiz recently.

ANRPC had earlier estimate that global rubber production could reach 9.5 milllion tonnes this year, up by about 6.3% from last year’s 8.9 million tonnes.

Djoko also expected rubber supply to remain tight until 2011. A large extent of existing yielding trees in major producing countries were planted in 1980s.

“Most of the trees planted have reached declining yield phase, thus the age composition of the existing yielding area is unfavourable for yield improvement,” he added.

Djoko noted that Indonesia and Malaysia had undertaken active replanting activities since 2005.

“I believe rubber prices will remain firm for quite some time until supply recovers, possibly by early 2012.”

Apart from the buoyant demand and drought-ridden supply, he said other factors influencing the rubber market included the weakening US dollar, volatility in yen and the increasing crude oil prices.

Members of the ANRPC countries account for about 94% of the total world natural rubber production.

Interestingly, more than 45% of global consumption of natural rubber is in China, India and Malaysia, which are the major consuming countries in the ANRPC.

ANRPC in its latest report said imports from China during January to February surged 63% for natural rubber and 118% for compound rubber compared with the same period last year.

During the same period, India posted a 17% increase in natural rubber consumption, given the large-scale capacity in its auto tyre manufacturing operation.

Meanwhile, Hwang DBS Vickers Research has also raised its 2010-2012 forecast rubber prices by 39% to 44% as its previous forecasts had not taken into account the price recovery on the back of stronger crude oil prices.

The brokerage said: “We believe strong demand recovery for the automotive sector in China and supply constraint due to ongoing conversions to oil palm and the wintering season between February and April would contribute to the jump in rubber prices.Our assumptions are factoring in 29% lower prices in the second half of 2010 compared with the first half.”

One analyst with a local stockbroking firm said the recent automobile industry statistics unveiled that the pick-up in the auto sector in China and the United States had been strong.

The automobile industry is the single biggest user of latex, easily consuming about 70% of the world latex production.

While some might argue that the price upsurge could be short-term given the traditional low supply wintering season, however, many feel that the current price hike was a reflection of strong demand.

“Even with a possible price reduction down the line, natural rubber prices are unlikely to ease to the low levels of December 2008 and January 2009,” he added.

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