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18. February 2006

MALAYSIA: Price of rubber too high, says minister

Source: Daily "The Star", Kuala Lumpur; 18 Feb 2006

World natural rubber prices are at least
25% above sustainable levels and those who have jacked
up the market must be able to weather a crash, said
Commodities Minister Peter Chin.

“I warn our people. Don't think you can simply go
ahead and push the market to whatever heights you want
because it will go the other way once demand softens,”
Chin said.

“To me, it would be good if we can accept a level of
US$1.40, or US$1.50 at the maximum, for a kilogram of
rubber,” he said yesterday. “I think that would be a
sustainable price.”

Traders agreed but said it was impossible to fight
market bulls in a scenario where supply was rather
tight.

“Since December, everyone has been saying prices are
way too high but the market still goes up,” said a
rubber broker with a foreign commodity house in Kuala
Lumpur.

Rubber futures fell 3.5% in Japan on Thursday while
prices in Thailand, the world's leading supplier,
slipped 2.5% after a global slide in commodities
triggered fund selling and froze physical trading in
South-East Asia.

In Malaysia, tyre-grade rubber SMR 20 closed at
US$1.8920/1.8970 a kg on Thursday, about 25% more than
what Chin thought was manageable over the longer term.


The minister warned the Association of Natural Rubber
Producing Countries, which accounted for 85% of global
output, at a meeting in Malaysia this week that prices
could dip to as low as 50 US cents a kg should supply
overtake demand.

“I hope producers will try and keep to a price that is
retainable yet remunerative, and one where consumers
don't feel too hard paying.”

Chin said micromanaging prices wouldn't be easy in an
industry dominated by smallholders or individuals who
planted on small acreages.

Aside from supply shortages, prices of natural rubber
are also underpinned by synthetic rubber, which jumps
every time prices of crude oil, a key ingredient,
rise.

“If crude oil prices go back to near US$70 a barrel,
it's going to be difficult to get a realistic price
for rubber based on actual consumer demand,” Chin said.


(Syed Rashid Ali, Karachi, Pakistan)

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