Rubber, palm oil prices to ease

Experts say the surging prices of rubber and palm oil could ease in the coming months, although healthy demand will keep the overall trend above last year's level.

Pranart Pipithkul, an economist with the Office of Agricultural Economics, named the recent floods that reduced the plantation area of rubber trees as the main reason for the jump in rubber prices.

The price of rubber sheet will grow increasingly volatile this year in line with seasonal factors and changing demand.

Prices will likely decline in March and April based on seasonal declines in demand before picking up in May and June on inventory stockpiles.

Production will increasingly slow down in February, March and April prior to the expected May price increase, said Ms Pranart. The rubber sheet price will also move in line with the oil price.

The rubber sheet price is expected to average 115-120 baht a kilogramme this year, up from 102 baht last year. It soared by 23% from 130 baht a kilogramme in mid-December to 160 baht last Thursday.

Praneet Chotikirativech, senior director of the Bank of Thailand's Southern Region Office, said the floods and heavy rains reduced rubber sheet production by a third, driving up the price.

The high price boosted the economies in dense plantation areas such as Surat Thani, Nakhon Si Thammarat and Songkhla provinces.

Mr Praneet said southern farmers enjoyed an average income increase of 60% last year against a 30% decline in 2009, mostly from rubber and palm oil.

The floods and heavy rains subsided this month, but rubber sheet remains in short supply worldwide. The weather change has also caused rubber plants to shed their leaves, preventing cutting, said Mr Praneet.

He said the palm oil price had also spiked to a record high of nine baht a kilogramme, from 6.50 baht last year.

The price mainly tracks that of petrol since it is used in biodiesel production but has increased significantly due to a shortage. It will likely ease in the coming months.

The central bank said in a report that the International Rubber Study Group (IRSG) expects world production of rubber to stand at 11 million tonnes, with Thailand ranking tops in terms of volume at 3.4 million tonnes, followed by Indonesia (three million), Malaysia (one million) and India (910,000).

The group expects China's rubber demand to keep rising in line with its plan of becoming a major automotive manufacturing centre over the next decade with annual production capacity of 30 million cars, up from 17 million now.

The central bank report said the weather change prohibiting rubber tree cutting is an upside opportunity for the price. However, the downside risk is Bridgestone's technology that demands less use of natural rubber in tyre manufacturing in favour of synthetic rubber.

(Source: http://www.bangkokpost.com/business/economics/218412/rubber-palm-oil-prices-to-ease)