Thai gov’t move for rubber stockpiles could backfire

THE Thai government’s move to stimulate the rubber prices could boomerang as it may discourage buyers, and consequently build up surplus of rubber, analysts say.

Thailand, the largest rubber producer in the world, told rubber farmers that it will buy 7% of the annual production of the country this quarter.

The government is buying 200,000 tonnes of rubber to prove that the rubber industry sector will not bring down its prices when they release their stocks into the market.

But analysts say that this may not be a smart move after all,  rather,  this may prove costly if it failed and could lead to having thousands of tonnes of unsold supplies.

It was announced early this year that the government will be buying un-smoked rubber sheets worth 15 billion baht (US$490 million) , which has boosted the Tokyo rubber futures to more than 20%.  But the intervention has been delayed to late February.

“The idea sounds good, but don’t forget that Thailand’s rubber producers are quite fragmented  and there are a lot of smallholders as well, so we would need to see how quickly they can all work together in a disciplined fashion,”  said Kona Haque, a soft commodities analyst at the  Macquarie Bank in London.

“If there’s a notion in the market that the government will start selling the stocks, then clearly that’s going to weigh on prices.” (RJA)