Malaysia sets rubber levy

Malaysia, the world's third largest producer of rubber, imposed a new levy on imported rubber for re-export and compound rubber in a move to reduce reliance on imports and support local production. The small levy was unlikely to affect prices, with demand for Malaysian rubber expected to remain steady, but dealers said the decision reflected concerns over declines in domestic production blamed on shrinking tapping areas.
The Malaysian Rubber Board imposed a levy of 4 Malaysian cents a kg on imported rubber for re-export and compound rubber. It also raised its current levy on natural rubber exports to 4 Malaysian cents a kg from 3.85 cents previously. All changes took effect from September 1. "Local firms have been flying under the radar with their mixing of imported rubber with the local grades for years but now it's not the case," said a Malaysian rubber trader.
"The government is obviously very concerned with the high import levels in recent years and they might as well make some money from this by ploughing back the collection from the cess into supporting local farmers and research." Domestic dealers have been importing more African rubber, particularly the STR10 grade, this year.
The African raw material, which normally comes from Liberia and Ivory Coast, is mixed Malaysia's SMR20 before being sold to customers like China. Malaysia, which also imports half a million tonnes of rubber from mostly Thailand and Indonesia, produces 1 million tonnes of natural rubber on average but output has been on the decline.
Sales of compound rubber to China from Thailand, Indonesia and Malaysia have also increased recently, which could be the reason why the government impose the levy, dealers said. "If China is not going to tax that much, well, the rationale here is that the Malaysian government should make some money out of it," said another trader. "It may depress demand a little, since the Chinese are so price-conscious."
Compound rubber is a mixture of natural and synthetic rubber and although prices are a few cents higher, it only attracts a 5 percent import duty in China compared with up to 20 percent for natural rubber, dealers said. But other dealers said physical rubber prices in Southeast Asia, which were mostly steady on Monday as buying interest offset a fall in Tokyo futures, would be largely unaffected.
"I don't think it's going to affect prices because 4 Malaysia cents is such a small amount. If we talk about 4 US cents, then I am sure there will be some impact," said one dealer from Thailand's southern city of Hat Yai. Natural rubber output in Thailand, Indonesia and Malaysia dropped 13 percent to 3.02 million tonnes in the first half of this year as fewer trees were tapped.