The Bangkok Post reports, “The Thai rubber industry is struggling to cope with declining prices, which have dropped for the third year to 50 baht a kilogram from 100 baht in 2012. The price slump is set to wipe off 36 billion baht from the local rubber industry this year, according to a rubber researcher.
Rubber production costs in Thailand now stand at 64.14 baht per kg while the average price of smoked rubber sheets is 55.19 baht, resulting a nine-baht loss per kg for growers, he added. “Given our rubber supply of 4.2 million metric tons, 36 billion baht will disappear from the industry in 2014 or 3 billion baht a month,” the source said.
The price of raw rubber sheets prices rose by 0.25 baht to 52.82 baht a kg and that of ribbed smoked sheet RSS-3 grade rubber grew 0.23 baht to 55.61 baht at 3pm on Friday, according to the Rubber Research Institute. Rubber growers have been trying to cope with the prolonged slump, mainly by processing the produce and auctioning. A network of rubber planters, which buys up to 200,000 kg of latex a day, borrowed 50 million baht from a state fund to build processing factories.
Vithoon Koopanthawee, an executive of a motorcycle dealer in the lower South, said processing rubber for local use and finding new markets could solve the problem. “Cutting production costs also helps, but not price compensation or intervention because the price slump is a world phenomenon,” he said. Charn Leela-aporn, a former adviser to the National Economic and Social Advisory Council, said the situation remained worrisome. “More rubber trees have been planted in both Thailand and abroad, especially in Indonesia, where production and raw material costs are lower than in Thailand,” he said. “Lower farmland prices, at 6,000 to 15,000 a rai, have also attracted Thai companies to invest in the neighbouring country,” said Charn.
In Phayao province, the Rubber Replanting Aid Fund Office has been holding auctions for rubber lump to help planters clear supplies. The office, a unit of the Agriculture and Agricultural Cooperatives Ministry, has organized several rounds of no less than 15 tonnes each, the capacity that fits transportation. The latest round in Pong district fetched 25 baht a kg, 2-3 baht above market prices.
Sai Income, chairman of an integrated rubber planters in Phayao, said planters had turned to rubber lump and stopped making sheets. Others have turned to growing longan. In the longer term, the outlook will slowly improve. Bloomberg News reported on Monday the global surplus of natural rubber would shrink 46 percent in 2015 as demand expands and farmers reduce tapping because of decreasing prices, quoting the International Rubber Study Group.
Production will outpace demand by 202,000 tonnes from 371,000 tonnes in 2014 and 650,000 metric tons last year, the Singapore- based body said. The group said in May the glut this year would exceed the 714,000 metric tons in 2013 after it increased output estimates for Thailand, the biggest shipper. Futures plunged 28 percent this year, declining to the lowest level in almost five years in June.
Supply increased after record prices three years ago spurred output, while demand slowed as the pace of economic expansion decelerated in China, the biggest buyer. The glut is now contracting as profits decrease for small farmers who represent 80% of world supply amid forecasts for record global car sales. “Small growers across producing regions have started responding to a consistent decline in prices,” said Lekshmi Nair, senior economist at the group. Farmers are showing less enthusiasm for tapping while tire demand is boosting usage, she said.
Global stockpiles are still expanding. Inventories will reach 3.79 million metric tons by the end of 2014 and 4.33 million metric tons by 2015, according to The Rubber Economist Ltd. “We don’t expect to see an end of ample supply,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said. “Demand growth will find it hard to catch up. We do not see a major scope for prices to recover.”