Indonesian rubber to stay firm due to low supplies

Indonesian rubber prices are expected to remain firm in coming weeks, boosted by low supplies and high oil prices, traders said on Tuesday. A hot, dry spell in Sumatra will put a brake on latex output and help keep raw material prices firm.
"Even though the wintering season has ended, supply has not bounced back to normal levels because it's been so dry," said one trader in the country's third-largest city, Median, in North Sumatra.
Some traders believe tight supply in the northern part of Sumatra is also the result of a decline in rubber plantations in recent years as farmers have shifted to more lucrative palm oil.
Meanwhile, the wintering season in the southern part of Sumatra has cut production by up to 30 percent. The wintering season, when rubber trees shed their leaves and yields are low, is expected to last until September or October.
Rubber is available for nearby shipments, but tightening supplies have forced exporters to limit volumes. Indonesia is the world's second-largest natural rubber producer behind Thailand.
It expects output to grow eight percent in 2005 to 2.167 million tonnes, industry officials have said. Industry data between January and May this year showed rubber exports rose 17 percent to 822,456 tonnes, compared with the same period last year.
In 2004 Indonesia exported around 1.87 million tonnes, mostly to Asia and the United States.
Apart from the supply situation, the recent rally in Japanese rubber futures has boosted raw material prices in northern Sumatra, quoted at 12,300 rupiah ($1.26) per kg, compared to 12,000 rupiah last week.
In the southern part, prices were offered at around 12,500 rupiah ($1.28) per kg, against 12,000 rupiah a kg last week.
Tight supplies in Thailand, due to drought and violence in the south, have forced the country to extend delays in shipments in recent months, causing rubber futures in Tokyo to hit a 17-year high last month.
Traders expressed concern that a rise in supply in Thailand and profit taking in Asian rubber futures could drag prices lower. However, they said any falls should be cushioned by strong oil prices, which could stimulate a shift in demand to natural rubber.
"My feeling is oil prices should support rubber prices at a high level, and local raw material prices should climb further, perhaps to around 13,000 rupiah ($1.33)," said one Padding trader.