Asian rubber: Indonesian producers wait for better prices; demand worries remain

Indonesian producers held back on rubber sales this week as they could not agree on prices with buyers, even as raw material costs climbed due to a shortage from the ongoing wintering season. Indonesian producers are seeking at least $1.46 per kg from buyers, but tire makers were looking for cheaper prices, a trader in Jakarta said.
The producers had sought up to $1.50 per kg last year, but were forced to lower offers amid slack demand. This week, Indonesia grade rubber SIR20 was sold to tire makers for about $1.45-1/2 per kg for May shipment.
"The market is still not in favour of the producers," said the trader. "Some tire makers are buying rubber from Thai, Malaysian and Vietnamese producers as the prices there are more competitive."
Costs have also been going up for producers due to the wintering season, when the output of latex - the raw material for rubber - drops as trees shed leaves. Wintering in major producers lasts from February to April.
The cost of raw material was quoted at around 16,000 rupiah per kg, slightly higher from last week's levels. Chinese buyers continued to be scarce in the market, dealers said.
DEMAND WORRIES
Industry players continued to be worried about oversupply in the market.
A glut along with slowing demand growth in top consumer China had prompted a slide in benchmark Tokyo rubber futures to five-year lows in late 2014. Prices have now recovered modestly, though they were trading near their lowest in a week on Friday.
"The market perception is that inventory hasn't been chewed away yet," Stephen Evans, secretary-general at International Rubber Study Group, said on the sidelines of an industry conference in Singapore this week.
"There has to be a big pickup in demand to chew up that inventory and nobody knows when that's going to happen. Once that's consumed then the whole market sentiment will turn around," Evans said.
China is targeting economic growth of about 7 percent this year, the lowest rate of growth in a quarter of a century, eating into demand for commodities.
Growth in China's rubber consumption will slow to single digit levels from a double digit pace, with the gap unlikely to be filled by other consumers, said Sheela Thomas, secretary general of the Association of Natural Rubber Producing Countries.
China accounts for about a third of global rubber demand, with No 2 India accounting for less than 10 percent.