Wednesday, June 2, 2010

Rubber Prices in Thailand May Decline as Production Rebounds

By Supunnabul Suwannakij

June 2 (Bloomberg) -- Cash prices of natural rubber in Thailand, the world’s largest exporter of the commodity, may decline as production increases this month, according to the Thai Rubber Association.

Output may exceed 200,000 tons a month in June and July, up as much as 30 percent from a low-production period in April and May, the group’s President Luckchai Kittipol said. Output this year may be 3.2 million tons, matching that of 2009, he said.

Futures in Tokyo have tumbled 20 percent after reaching a 21-month high of 338.5 yen per kilogram ($3,704 a ton) on April 16 on concern Europe’s debt crisis may slow the global economic recovery. Manufacturing in China increased at a slower pace than expected last month, raising concern that demand from the largest rubber user may weaken.

“Rising output and worries over slow manufacturing growth in China will pressure the price,” said Luckchai. “Thai prices will gradually decline to a balanced level after overheating to a record this year,” he said, without providing a forecast.

Futures for November delivery, the most-active contract, declined as much as 15.7 yen to 266.5 yen per kilogram before settling at 269.2 yen on the Tokyo Commodity Exchange. Prices dropped to five-month low of 250.9 yen on May 17.

The free-on-board price of the benchmark Thai RSS-3 grade rubber for July-delivery, which excludes freight and insurance, declined 2.8 percent to 122.90 baht a kilogram today, the Rubber Institute of Thailand said. The price reached a record 130.55 baht on April 27.

High Thai prices have made supplies less competitive than those from rivals Indonesia and Malaysia, said Luckchai.

Supply Shortages

“We’re worried that demand for RSS-3 rubber may decline as prices are volatile and higher than they should have been,” he said. Domestic supply shortages are partly responsible for the high prices, he said.

Chinese buyers cancelled orders for less than 2,000 tons of RSS-3 rubber in May from Thailand, said Luckchai.

Still, “that amount is insignificant, compared with total exports to China of around 1.1 million tons a year,” he said. “It is unlikely we’ll see more product cancellation as prices have improved from the low level in May.”

Thai rubber exports this year may exceed the 2.8 million tons shipped in 2009 as the global economic recovery is expected to increase demand for tires from main buyers including China, Japan and Europe, he said.

(bloomberg.com)

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