Thailand, the world's biggest rubber producer, plans to halve its output of the commodity for six months from October to shore up prices, the Agriculture Ministry said on Monday, but traders doubt the plan will work. Sceptical traders said it would be hard to convince poor farmers to tap less rubber, and called for more concrete price support measures, such as building a government stockpile.
The output cut of around 700,000 tonnes was based on the figure of 1.4 million tonnes Thailand produced from October 2007 to March 2008, Deputy Agriculture Minister Theerachai Saenkaew, who oversees rubber matters, said. "We will encourage farmers to tap less latex as we aim to cut rubber supply by 50 percent between October and March," the minister told Reuters in an interview.
The cut would be equivalent to around 23 percent of Thailand's likely production this year of around 3.1 million tonnes. The country produced 3.0 million tonnes in 2007. To achieve its aim, the government would accelerate its replanting programme and urge farmers to cut down more ageing rubber trees, Theerachai said. Some traders and dealers said they still expected the government to come up with concrete measures to support prices, as it does with other commodities, such as rice, although that could be expensive.
"It would be better if the government intervened in the market by buying rubber and kept it in stockpiles," one Thai trader said. The government wants to cut the area covered by rubber trees that are more than 25 years old by 64,000 hectares (158,100 acres) a year, up from the current 32,000 hectares per year.
"Cutting more ageing trees will help reduce rubber supply and would support prices, while farmers will get paid," Theerachai said. The government encourages farmers to take out old trees by supporting them while new trees grow.
Last month the subsidy paid under the replanting programme was raised to 11,000 baht per rai (0.16 hectare) from 7,000 baht, payable over the five years it normally takes for young trees to mature and start producing latex. The price of Thai RSS3, a benchmark for physical prices, was quoted at $1.85 per kg on Monday, just a few months after it struck a 56-year high of $3.25 in July.
Tokyo rubber futures reflect the bearish outlook, with March contracts falling by the 16 yen daily limit to a three-year low of 159.2 yen per kg on Monday, with weak oil and a strong yen adding to the pressure. Car sales are slumping as consumers turn cautious in the face of a global financial crisis, and with more than 70 percent of rubber sales going to the car tyre industry, top producers Thailand, Indonesia and Malaysia are feeling the pinch. As part of the plan to reduce rubber supply, Thailand will have fewer physical rubber trading days in local trading centres from October to March, Theerachai said.
"Trading days would be cut by two or three days per week to meet falling supply," he said, although Thailand's main Hat Yai rubber centre will trade as usual. Rubber traders felt physical prices would continue to fall. "I think it's just verbal intervention, which may not have a long-term impact on the physical rubber market," a dealer in Tokyo said.
Prices were unlikely to rally significantly as farmers may simply not follow the exhortation to tap less latex or cut down old trees, especially those who were deep in debt, traders said. "It's a good plan that is difficult to implement as you can't force farmers to tap less latex. They can't stop tapping as they need money," said a trader in Hat Yai.
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