The Bradwall estate manager's house, built in 1912 on the highest hill in Rantau, is little changed from the days when the English author Somerset Maugham travelled the Federated Malay States in the 1920s, chronicling the lives of its colonial planters.
Inside, the snooker table retains pride of place, watched over by a Michael Jackson poster put up by the plantation workers for whom the house is now a social club.
Outside, the estate stretches away through the low hills of Negeri Sembilan much as it did nearly a century ago, although many of its tall slim rubber trees have been replaced by dark and brooding oil palms, the main plantation crop of modern Malaysia.
Now, though, it is natural rubber that is in the spotlight, thanks to a surge in demand and supply disruptions that have pushed averagebenchmark rubber prices to near a 56-year high. "This is a good time to be in rubber," says Nageeb Wahab, a senior vice-president of Sime Darby, the Malaysian conglomerate that owns rubber plantations in Malaysia and Indonesia, including Bradwall.
The benchmark surged last month to $3.20 per kg, up from $1.10 per kg in December 2008, and within a whisker of the 56-year peak of $3.25 per kg hit in mid-2008.
As a result, tyre companies, which account for the bulk of natural rubber consumption, have been lifting their prices. Hankook Tire Co, the South Korea-based company that is the world's seventh-largest tyre producer, recently announced price increases because of higher rubber costs. Other industrial consumers, from glove manufacturers to condoms producers, are likely to follow suit soon.
The high prices have prompted Sime Darby to consider expanding its rubber plantations. Yet there are huge uncertainties about the forces that have driven the recent surge in prices, and whether it will end in a repetition of last year's crash. Economists say that there are several possible causes for the latest price spike, including:
* A fall in global production through 2009, caused by a reduction in yields as a result of wet weather in big producer countries such as Thailand, the world's largest, as well as Malaysia and Indonesia. The trio account for almost 75 per cent of global natural rubber output. The fall is estimated at 5.1 per cent by the Association of Natural Rubber Producing Countries, which represents the largest producers. Other estimates by trade associations and analysts appear even higher.
*Rising demand as the global recovery took effect in the second half of the year, especially from China, where the booming automobile industry is generating a large increase in tyre production, the destination for about 70 per cent of natural rubber output. Health scares, such as the swine flu epidemic, helped raise demand for higher quality latex, used for products such as surgical gloves.
*Higher oil prices increased the price of synthetic rubber, an oil derivative, which competes with the natural product in some industries.
*The strong flow of funds seeking investment opportunities in faster growing Asian markets, including commodities such as rubber.
In public, governments are taking a sanguine view. Bernard Dompok, Malaysia's commodities minister, said last month that he expected rubber to trade at between $2.40 and $3 per kg for the rest of this year.
However, industry officials said that the three biggest rubber producers - Thailand, Indonesia and Malaysia - were sufficiently concerned about the level and volatility of prices to discuss intervention, including releasing stocks, at a recent meeting in Kuala Lumpur, although they decided to take no action.
Forecasting is complicated by a surge in planting between 2005 and 2008, which will bring an estimated 1m hectares of new trees into production between next year and 2015. Production is rising fast, although from a low base, in Cambodia, Vietnam, China and India.
Djoko Said Damardjati, secretary-general of the Association of Natural Rubber Producing Countries, expects production and consumption to rise over the medium term, with prices remaining at a "reasonable" level helped by rising prices for synthetic rubber alternatives.
The International Rubber Study Group, a trady body based in Singapore, estimates that natural rubber consumption will climb to 14m tonnes by 2019, up almost 35 per cent from a forecast of 10.4m tonnes in 2010.
However, forecasts would be disrupted by a return to recession in the west as fiscal and monetary stimulus measures are withdrawn. And economists and traders say that even if the world avoids another economic crisis, the short-term outlook for the rubber industry could be extremely volatile due to weather related supply disruptions.
Makoto Sugitani, senior director of commodities for Newedge in Tokyo, a major centre for rubber trading, says that prices could rise considerably higher in the near future, largely driven by investors' exuberant confidence in Asia, rather than by industry fundamentals. "It is difficult to forecast prices because if they break the previous high [in mid 2008] there is no price ceiling," says Mr Sugitani.
The downside, though, is that the market is at risk of a serious correction if confidence sags. "If anything goes wrong in the whole of this complex economic structure then rubber prices could fall 20 to 30 per cent," Mr Sugitani says.
(Source: ft.com)
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