Indonesia's main rubber grouping is seeking to put a floor under prices at $1.50/kg as the world's No 2 producer looks to support global prices that have plunged more than 30 percent so far this year. Shanghai and Tokyo futures are struggling near multi-year lows, hurt by worries about China's economy and recently by Thailand's decision to sell its 200,000-tonne rubber stockpile.
Indonesian SIR20 tyre grade is currently trading at about $1.40 per kg, below the cost of production of about $1.60 per kg. "GAPKINDO has written and sent a circular to all its members telling them not to sell rubber if the price is below $1.50 a kg," Rusdan Dalimunthe, executive director at the Indonesian Rubber Association (GAPKINDO) told Reuters.
The letter had also been sent to International Rubber Consortium (IRCo) members, Singapore and Vietnam, said Dalimunthe, adding that Thailand had sent a similar letter to producers in the world's biggest rubber producer and exporter. Thai rubber officials could not be immediately reached for comment on Monday. GAPKINDO members had also been asked to slow sales in the fourth quarter and refuse to sell under $2 per kg, added Daud Husni Bastari, the association's chairman.
Previous attempts to support global prices by dominant rubber producers Indonesia, Thailand and Malaysia have had limited success due to the different levels of upstream and downstream industries developed in these countries. Such measures have included cutting down and replanting rubber trees, reducing tapping rates and holding back exports. Bastari said late last week, Indonesian rubber output will be an estimated 3.1 million tonnes this year, 100,000 tonnes higher than a previous forecast.
Indonesia, which exports about 85 percent of its total rubber production, currently had little or no rubber inventories due to the wintering season, Bastari added. Rubber is tapped year-round but latex output drops during the dry wintering season, when trees shed leaves. Wintering in Indonesia lasts from February to May before starting again in July and running through September.
China buys almost 20 percent of Indonesia's rubber exports, and concerns over economic growth in the world's No 2 economy and top rubber consumer have hurt prices in recent months. Bastari also reiterated his previous call for the establishment of a group for rubber producing countries within the Association of Southeast Asian Nations, which supply around 90 percent of the world's rubber. This was due to both the emergence of other Asian rubber producers, like Cambodia, Myanmar and Laos.