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14. November 2006

INDONESIA: Indonesia expects lower rubber output

Source: Daily "The Jakarta Post", Jakarta; 14 Nov 2006

Indonesia's rubber output may end the year 50,000 tons
lower than the previously targeted 2.2 million tons
due to unfavourable 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 USD 1.70 per kilogram at
present from a mid-year high of around USD 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 USD 1.70 and USD 1.85 per kilogram
by the end of the year, and move within a range of
USD 1.80 up to USD 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 USD 1.65 and USD 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 USD 1.68 per
kilogram, peaking at USD 2.48 in July before falling to
USD 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.



(Syed Rashid Ali, Karachi, Pakistan)

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