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Indonesia's rubber output may end the year 50,000 tons lower
than the previously targeted 2.2 million tons due to unfavorable
weather conditions in the form of heavy rain forecast for the coming
months, the Indonesian Rubber Association (Gapkindo) says.
This may, however, be a blessing in disguise for the industry as it
should help support rubber prices, which have fallen back to some
US$1.70 per kilogram at present from a mid-year high of around $2.50.
Indonesian rubber producers have also agreed with other major regional
producers in Thailand and Malaysia to cut exports if prices continue to
fall due to indications of the market speculators are at work.
Gapkindo vice chairman Asril Sutan Amir said this year's
lower-than-expected production would mainly be the result of a forecast
"El Nino", a climatic phenomenon in the Pacific that leads to severer
storms, downpours and droughts, and whose effects have begun to be felt
in Indonesia.
"Heavy rains have already caused flooding in several plantations in
North Sumatra," he said. "And sap with too much water content is always
not good for production."
The unfavorable weather condition, which may continue until February of
next year, coupled with possible disruptions in the production cycle
due to the felling of rubber trees for timber, could further reduce
output to 2.1 million tons next year.
Indonesia is currently the world's second largest rubber producer, only
behind Thailand's output of 2.8 million tons, but ahead of Malaysia's
1.1 million tons.
Some 11 percent of Indonesia's production is for domestic consumption.
The furniture industry has been developing an appetite for timber from
rubber trees.
Against this background, Gapkindo expects rubber prices to range
between $1.70 and $1.85 per kilogram by the end of the year, and move
within a range of $1.80 up to $2.10 in 2007.
Higher prices are what rubber producers desperately need at the moment
as they try to secure their investment returns.
"We want fair and profitable prices, particularly for the small growers
so that they will still have an incentive to planting rubber," Asril
said, saying that an ideal price would be between $1.65 and $2.25 per
kilogram.
Some 85 percent of Indonesia's 3.26 million hectares of rubber
plantation are managed by small growers, who could be tempted to fell
their trees for timber if rubber prices continue falling. The natural
rubber industry is also facing competition from synthetic rubber made
from crude oil.
Gapkindo chairman Daud Husni Bastari, who recently attended the
International Tripartite Rubber Council (ITRC) meeting in Chiang Mai,
Thailand, lamented the fact that there were indications of futures
market speculators working to bring rubber prices down, despite the
fact that the sector currently boasted solid market fundamentals in the
form of balanced supply and demand.
Rubber prices started off the year at $1.68 per kilogram, peaking at
$2.48 in July before falling to $1.70 as of October.
"The ITRC is therefore ready to use its instruments to stabilize rubber
prices," Husni said.
"We are ready to cut exports if market players continue to insinuate
there is an oversupply so as to bring prices down. We will also
coordinate our production cycles more effectively in order to meet
demand as we don't want prices to go too high, either."
The ITRC consists of Thailand, Indonesia and Malaysia, which together
now account for 70 percent of the world's rubber output.
Rubber is mainly traded on Tokyo's TOCOM and Singapore's SICOM
commodity markets.
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