Thailand’s role in record rubber prices

Another day, another record price for rubber.

Two years ago south-east Asian producers were talking about grubbing up rubber trees in an attempt to bolster the price of latex. They didn’t do it, and just as well – growing demand and tight supply have driven prices up into previously uncharted territory.

On Wednesday, Thai rubber (RSS3) was up 5c at $4.95/kilo, more than four times its December 2008 price of $1.10/kg.

Rubber consumers – 60 per cent of natural latex goes to make vehicle tyres – are being squeezed. The price rise is partly a result of the global boom in soft commodities. Rubber prices seem to have lost their traditional linkage to oil prices and are now taking their cue from other products. But the price is also being driven by more traditional pressures.

Since the nadir of the crisis two years ago demand has come back with a vengeance: the Chinese automotive market is booming, and despite a sluggish recovery in the west, drivers are still buying new tyres.

Meanwhile, supply is static at about 10m tonnes a year. Thailand, the world’s largest producer, had a dry first half of 2010, and the harvest was disrupted in the second half by flooding in some of the most productive areas of the country.

“Demand is growing faster than supply,” said Chayo Trangadisaikul, the president of the Federation of Thai Industries Rubber-based Industries Club, but he says there is also a technical element.

“Towards the end of the year, the statistics come out and they show we’re not going to have enough rubber,” he said.

Some analysts say that is too downbeat, that there are too many variables to be sure: the weather, the sustainability of the economic recovery, just how much latex has been stockpiled could all have a significant impact on the market.

But economists say supply is going to remain tight for a while, and there are some concerns that over-tapping to take advantage of the recent hike in prices might actually reduce output.

Some new production is coming on stream. In 2004 Thaksin Shinawatra, Thailand’s former prime minister, launched his ambitious programme to plant a million rai (4m acres) with rubber saplings. But it takes seven years before a rubber tree produces commercial quantities of rubber so, cateris paribus, it looks like the market is going to be tight for at least another 18 months or so.

Just be glad that the producing countries didn’t follow through with their plan to cut down their rubber trees.

(Source: http://blogs.ft.com/beyond-brics/2010/12/22/thailands-role-in-record-rubber-prices/)