Thailand is not renewing rubber-buying scheme

Thailand is not renewing rubber-buying scheme The Thai government has announced that it will not renew its rubber-buying scheme that is due to expire at the end of March, following indications that prices have rebounded to acceptable levels.

The benchmark Tokyo rubber contract, which has gained about 50% the last six months, dropped to an almost three-week low after the news.

The Deputy Agriculture Minister, Yuthapong Charassathien stated that the scheme is no longer necessary since prices have reached the levels that are satisfactory for the farmers.

The benchmark Thai smoked rubber sheet (RSS3), which fell to US$2.80 per kg in mid-2012 and prompted the government’s intervention, was trading recently at US$3.30 per kg

Whilst that was below the record high of US$6.40 per kg hit in February 2011, traders said the market appeared to have come to a level accepted by both sellers and buyers.

“I think the timing of this halt to intervention is quite good as we are entering the dry season, when supply is falling,” said Chaiyos Sincharoenkul, President of the Thai Rubber Association, adding prices could have surged if the government continued buying when supply became tight.

During the dry season, rubber trees have stopped producing latex. Rubber supply normally drops by 50% cent from the roughly 200,000 tonnes the country produces in a typical month outside the dry season.

In Tokyo, the benchmark contract for July delivery fell 10 yen to 314.2 yen per kg, the lowest since February 1.

A Tokyo-based dealer said, “Investors liquidated contracts to cut losses after prices fell below major support at 320 yen. The Thai move also added pressure to the market, encouraging players to sell further.”

Yuthapong said stocks held by the government stood at 198,000 tonnes of smoked rubber sheet, down from an almost 200,000 tonnes reported earlier.

“There’s around 800-900 tonnes of rubber that has gone rotten as it was kept in unsuitable places,” he said.

He insisted that the government would not dump the stocks on the market but would use the rubber as a raw material to build roads and reservoirs.

Apart from the buying scheme, Thailand also joined key Asian producers and exporters Indonesia and Malaysia to restrict shipments and shore up prices from last October.