--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, April 12 Thailand's
efforts to prop up rubber prices by cutting exports have met
with some success, but they are likely to run into major
headwinds in the next few months.
Thailand, the world's biggest producer and exporter of
natural rubber, together with Malaysia and Indonesia agreed last
year to cut exports by 300,000 tonnes between October and March.
The three nations account for 70 percent of natural rubber
exports and the reductions helped benchmark Tokyo Commodity
Exchange rubber rally 60 percent from an almost
three-year low in September last year to the 2013 peak of 337.8
yen ($3.38) per kilogram reached on Feb. 6.
The contract has since slipped to close Thursday at 276.9
yen and the chances are that Asian rubber prices will come under
further pressure, even if Thailand is successful in convincing
the other two major Southeast Asian producers to extend export
Inventories of rubber in top importers China and Japan are
at multi-year highs and demand from the automobile sector, the
major rubber-consuming industry, is expected to be muted.
This suggests that Chinese and Japanese rubber users may
choose to use up inventories in coming months rather than
Since the beginning of 2009, there has been a fairly strong
correlation between Tokyo rubber prices and Chinese inventories,
with prices gaining in tandem with stocks but falling when they
are run down.
Rubber inventories in warehouses monitored by the Shanghai
Futures Exchange rose 1.5 percent in the week ended March 29
from the prior week, and at 117,696 tonnes are the highest since
Feb. 26, 2010.
The three-year high in China is doubled by a six-year peak
in Japan, where rubber stocks reached 15,799 tonnes in the week
to March 31, the highest since 2007, according to data from the
Rubber Trade Association of Japan.
Plentiful inventories and slower growth in automobile sales
in China may curb the appetite of the world's biggest importer.
Chinese vehicle sales are expected to rise a lacklustre 7
percent in 2013, marking the third consecutive year of
single-digit growth, according to a forecast by the China
Association of Automobile Manufacturers.
However, sales for this year have been stronger than the
forecast, gaining 13.2 percent in the first quarter from the
same period a year earlier.
But even if car sales do surprise on the upside, the
plentiful inventories and the rise in rubber prices since last
year's lows may curb import appetite in China, which has been
strong so far this year.
Natural rubber imports rose to 230,000 tonnes in March, a
21.1 percent gain over the same month last year and the highest
monthly total since November 2011.
The first quarter also saw inbound rubber shipments gain
31.7 percent over the same period a year earlier as Chinese
buyers took advantage of the lower prices that prevailed toward
the end of last year.
With prices having peaked in February, when April cargoes
would have been booked, it won't be surprising to see a pullback
in Chinese imports when figures are released next month.
Thailand is meeting Malaysia and Indonesia this week in the
resort island of Phuket to discuss whether to continue cutting
exports, with talks due to finish Friday.
Thailand has decided to continue limiting exports for
another two months, but it's not yet clear whether the other two
producers will agree to further restrictions.
In addition to major buyers having ample stockpiles, the dry
season in Southeast Asia is nearing an end and supply tends to
rise from Thailand after the three-day water festival of
Songkran, which starts this weekend.
This adds to the bearish outlook and it will take a major
effort on the part of producers to reverse sentiment through
However, the Thais can take some comfort that rubber prices
have risen enough for them to feel comfortable in suspending the
government's intervention scheme, which expired at the end of
The government still holds about 198,000 tonnes of smoked
rubber sheet, which in itself is a bearish factor as it creates
an overhang of potential supply, but it's likely this will stay
off the market for as long as prices remain biased lower.
(Editing by Joseph Radford)