As the world’s second largest producer of rubber, Indonesia’s main rubber group has aimed to fix floor prices at $1.50 per kg (RM 4.90). The groups’ intention for setting the price at $1.50 is due to plummeting global prices that have dropped by more than 30 percent this year. The Indonesian Rubber Association (GAPKINDO) reports that a writer circular has been sent to all members informing to not sell rubber if the price falls below $1.50 per kg. The letter has also been sent to the International Rubber Consortium (IRCo) members, Singapore and Vietnam. Thailand has already sent a similar circular to the world’s largest rubber producer and exporter.
Due to the different levels of upstream and downstream industries developed in Indonesia, Thailand and Malaysia prior attempts to support global prices have had inadequate success. The measures of keeping up with global demands have caused these dominant rubber producers to cut down, replant, reduce tapping rates and holding exports of rubber. Commodities are fraught in multi-year lows in Shanghai and Tokyo and is injured by China’s economy and also, followed by Thailand’s recent decision to vend the 200,000 rubber stockpile. GAPKINDO has also been prompted to slow-down sales in the fourth quarter and has been told to refuse to sell under $2 per kg, states DaudHusniBastari, GAPKINDO chairman. Bastari estimates the Indonesian rubber output will be 3.1 million tons this year and 100,000 tonnes higher than the previous forecast.
Indonesia, much like Thailand exports about 85 percent of its total rubber production and currently had next to nil rubber inventories due to the wintering season that begins in February and ends in May. This indicates that rubber can be tapped year round, however, latex outputs will dip during the dry wintering season as the trees will shed their leaves. China makes 20 percent of the Indonesian rubber exports and are the world’s top rubber consumer have hurt prices in the recent months due to apprehensions over its economic development.
Both Thailand and Malaysia have moved to support the fix floor price of a minimum $1.50 per kg. Indonesia, Thailand and Malaysia are assembled with the International Rubber Consortium had enacted joint participation in 2012-2013 by agreeing to decrease exports by 300,000 tons which is three percent of the global output. The rubber prices had seen a temporary rise in response to this strategy however dipped again because of apprehensions that a debt crisis in Europe could stunt demands.
The recent price declines have hurt farmers in Indonesia and have forced them to seek employment in other sectors. An Indonesian rubber trader reports “Farmers are suffering the most, so they move to other jobs. One kilogram of rubber cannot buy rice anymore. Maybe they will now go to work in the palm oil plantations”Salmiah Ahmad, director general of the Malaysian Rubber Board, said her group will be supporting GAPKINDO’s plan.With the event of a future slump in the market, rubber groups in Malaysia will support the plan by GAPKINDO that seeks to have unison in agreement to fix the sale at a minimum of $1.50 to the kg.