World Economy

Asia Rubber Producers Want Higher Prices

Asia Rubber Producers Want Higher Prices
Asia Rubber Producers Want Higher Prices

Once again Asian rubber producers are trying to force prices higher, this time by restricting supply and attempting to break the link between physical and futures prices.

Certainly, Asian rubber has moved higher since at least 10 major producing companies said earlier this month that they plan to raise prices and scrap a system of pegging them to the benchmark set by the SICOM exchange in Singapore, Reuters reported.

The main SICOM contract has jumped 7 percent since a six-year low of $1.35 a kilogram hit in January, a level that was revisited on April 9, to close on Tuesday at $1.445. This is still 5.8 percent below the price at the start of the year and about a quarter of the record high reached in February 2011.

Other regional benchmarks have also gained, with the Tokyo Commodity Exchange contract reaching a 5-week closing high on Tuesday of 216.7 yen ($1.82) per kg, while Shanghai futures ended at 14,370 yuan ($2,318) per ton, a 16 percent gain since April 9.

These are impressive gains, but whether they can be sustained depends on the rubber producers being able to do something they haven’t done in the past, namely keep supply discipline for an extended period of time.

Sri Trang Agro-Industry and Halcyon Agri Corp., who account for nearly a fifth of global natural rubber output, have joined with at least eight other growers in a bid to boost prices.

They plan to raise rubber prices in the second half of the year, and some may stop supplying into the SICOM system in favor of directly negotiating with buyers, mainly tyre makers.

“Prices of SICOM no longer reflect the real cost of rubber production,” a spokesman for Thailand-based Sri Trang told Reuters in an email, adding that the company would also stop delivery to the bourse.

Sri Tang is the world’s largest producer with an annual capacity of 1.2 million tons, an amount about the same as the output of Malaysia, the third-biggest producing nation.

Halcyon will also stop supplying cargoes to SICOM, as will other producers.