Exports of some contracted rubber cargoes from Indonesia have been delayed as several farmers stopped tapping amid a slump in global prices of the commodity, traders in the world’s second biggest rubber producer said. Weak demand amid a global supply glut pushed down benchmark rubber futures to a five-year low earlier this month, forcing farmers in Indonesia to switch to other jobs and tightening raw material supply.
“Farmers are not harvesting rubber because prices are very low. They have taken up other jobs,” said a trader in Medan, the provincial capital of North Sumatra. “We don’t take short-term deliveries because of the shortage, only long-term.” Some deliveries out of Indonesia were being delayed by a week to a month depending on the quantity, traders said.
“The shortage is not only in Medan now, it is spreading to Palembang, Padang, Panjang and Jakarta,” said a Jakarta-based rubber trader. “People are only concentrating on long-term contracts. If there is supply, they want to fulfil those contracts first, before selling elsewhere.” Tighter supplies have raised prices of raw material cup lump to 17,500 rupiah ($1.44) per kg this week from 16,500 rupiah last week, the Medan-based trader said. Cup lump is a lump of rubber collected in tapping cups on trees.
Benchmark Tokyo rubber futures rose to a two-month high above 200 yen ($1.83) per kilogram on Thursday, but remained 27 percent down for the year after dropping to five-year lows near 173 yen earlier in October.
In physical deals this week, top tyre maker Bridgestone Corp bought SIR20, a key Indonesian rubber grade, at $1.60 per kg for December delivery and $1.63 for February shipment, traders said. Malaysia’s RSS3 grade was sold at $1.73-$1.75 per kg, they said. Those prices were up from earlier this month when some cargoes changed hands at below $1.50/kg in line with the slide in global rubber prices, prompting key Asian producers to urge members to adopt a price floor.
The push for a minimum price of $1.50/kg along with measures in top rubber producer Thailand to support hard-hit farmers have helped prices recover. Thailand’s cabinet passed a 58 billion baht ($1.8 billion) subsidy plan last week to support rubber farmers who have threatened protests against the country’s military-led government.
But market players doubt that the rally would hold up. The recent rebound in prices was largely fuelled by heavy short-covering, said a Singapore-based trader.
“The producing nations and suppliers seem to have won the battle by first talking the market up and then have a consensus and concerted action. The run-up caught many by surprise and we are now nearing overbought conditions,” he said.