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23. October 2006

MALAYSIA: Rubber industry regains its shine

Source: Daily "The Star", Kuala Lumpur; 23 Oct 2006

The negative perception of rubber being a sunset industry is fast diminishing given its exciting prospects. MARDEC group chief executive Datuk Dr Mahmood Abd Kadir said for the first time in history, rubber was traded at over RM3 per kg on average over the last four years, at more than RM4 per kg for over three years and more than RM6 per kg for the past 12 months. “This had never been experienced before by the one-century-old industry,” said Mahmood, who is Malaysia's representative and chairman of International Rubber Consortium Ltd (IRCo), a tripartite consortium comprising three world rubber producers – Malaysia, Thailand and Indonesia. IRCo acts as a mechanism to ensure fair and remunerative rubber prices to protect rubber planters of the three countries. It was given a mandate by the three producing nations to implement the Supply Management Scheme (SMS) and the Agreed Export Tonnage Scheme (AETS). The price of natural rubber shot up to RM8.52 per kg in June, before stabilising at RM6.30 to RM6.70 per kg currently. “With demand and supply almost matched, I believe prices will remain firm with an average of over RM6.50 per kg this year, which is higher than last year's average of about RM5.20 per kg,” said Mahmood. Backed by the high crude oil prices, strong demand from China and abnormal rainfall which affected major producing areas in southern Thailand and northern Malaysia, he is confident that rubber will not likely be traded below RM3 per kg. Mahmood cautioned industry players on potential threats, such as the:

  • economic slowdown in Western countries;
  • the unexpected hard landing of China's economy and;
  • terrorist attacks that would affect rubber consumption worldwide. Barring unforeseen major disruptions in supply and demand, he said, rubber prices would trade in the RM5.50 to RM7.50 per kg range at least over the next one year based on existing fundamentals. Mahmood also attributed the current commendable rubber prices to IRCo's effectiveness in monitoring the market sentiment. In 2003, the decision by the three countries to intervene by implementing AETS helped in the recovery of rubber prices to USD 1.17 per kg from its 30-year low of USD 0,48. “IRCo is not about price stabilisation but ensuring fair and remunerative prices for rubber smallholders,” he said. Through its two schemes (SMS and AETS), IRCo was able to carry out its role more effectively than the defunct International Natural Rubber Organisation (INRO), which acted as a buffer stock manager for rubber. “INRO was successful in achieving price stabilisation (for rubber) but at a low price. Its failure was due to the high stocks build-up, thus creating an overhang supply situation which was detrimental to the market sentiment,” he said. Under IRCo's SMS, Mahmood said, the consortium was able to coordinate the NR growth and ensure the respective producing countries did not overproduce. “We are able to implement growth plans according to the world market demand, and this will not create an oversupply situation,” he said, adding that should an oversupply situation occur, the consortium would then implement its AETS scheme to ensure that the three producing nations hold back their exports by a mutually agreed quantum. Mahmood said IRCo was also trying to get Vietnam to join the consortium. “We believe Vietnam, which is currently the world's fifth largest rubber producer at 470,000 tonnes per year, can grow to as big as Indonesia in the foreseeable future,” he added. Thailand is the world's largest rubber producer at 3.1 million tonnes, followed by Indonesia (2.3 million), Malaysia (1.1 million) and India (770,000 tonnes). (Syed Rashid Ali, Karachi, Pakistan)

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