--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, April 12 (Reuters) - 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 restrictions.
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 continue importing.
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 export restrictions.
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 last month.
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