Thailand may use some of its huge 210,000 metric ton natural rubber stockpile for domestic infrastructure, reducing the need to export it into glutted global markets.
The International Rubber Consortium says a Thai government committee is proposing using some in building roads, pavements, sports facilities and dams.
Thailand’s military had decided not sell the stockpile, said the consortium in a posting on its website, adding that the plan will need junta approval. Thailand normally produces a third of the world’s natural rubber.
It’s hard to see domestic projects making much of a dent in the stocks, though. Nine months back, Thai state broadcaster MCOT said that the army planned to use just 322 tons of rubber in constructing 305 kilometers of roads, so absorbing even a small percentage will take a huge amount of infrastructure work.
The stocks were inherited from the ousted government, which built them through state-funded support programs aimed at boosting rural incomes, including paying above-market prices to tappers. However, they have cast a dark shadow over a market weighed down by large output surpluses and worries over slowing economic growth in China, the world’s top rubber user.
Some of the rubber is deteriorating due to age, and, adding to the problem, farmers have now resumed tapping after their usual dry-season pause.
The rubber consortium oversees supply and exports by Thailand, Indonesia and Malaysia, which collectively produce over 70% of the world’s natural rubber. It has been discussing the stocks situation with the Thai committee.
Benchmark global rubber futures on the Tokyo Commodity Exchange have recovered slightly due to the proposal. Prices settled at ¥201.1/kg Friday. On June 5, Tocom rubber hit a near five-year low at ¥190.3/kg.
“The news on the Thai government will have just a little effect on fundamentals, but it improves market sentiment,” said Kaname Gokon, deputy manager of research at Tokyo-based brokerage Okato Shoji.
What is happening in Thai rubber mirrors problems in the rice sector. Thailand lost its crown as the world’s leading rice exporter in 2012 because of a similar income-support policy that paid farmers above-market prices but left the country with huge stockpiles of rice and massive debts.