Rubber Producing Nations Plan to Set Up Regional Market

Monday, June 21, 2010

Kuala Lumpur, Malaysia -- According to an article Friday in wsj.com by Huileng Tan and Shie-Lynn Lim: "The world's major rubber producers, Malaysia, Indonesia and Thailand, plan to set up a regional physical market in a bid to reduce volatility in pricing, Malaysian Plantation Industries and Commodities Deputy Minister Hamzah Zainudin said Friday. "In view of excessive speculation (which led to price distortions), it is timely for Thailand, Indonesia and Malaysia to consider the joint venture," Hamzah said.

The regional market may also expand in the future to include other rubber-producing countries in Asia, he told reporters on the sidelines of an industry conference. However, the chairman of the Rubber Board of India, Sajen Peter, said that the regional cash market would be a sort of cartelization and "would not work" as most producers are smallholders who are driven by supply-demand fundamentals. "It cannot be controlled the way you control oil prices; opening the tap and closing the tap would not work here," he said on the sidelines of the conference.

"There's no point in a few countries joining together and saying that you will not sell - it will not work." Rubber prices have been very volatile in recent years on the Tokyo Commodity Exchange, with spot contract prices rising to a record high of $4.10 a kilogram in April, as demand from tire makers and other users was strong but output was low due to the wintering season, when rubber trees shed leaves and produce less latex."