* Vietnam's output approaches 1 mln T this year
* Global market in fourth straight surplus in 2014
* Fears of slowing demand from China hurt prices
* Price war risk as farmers unlikely to hold back rubber
By Lewa Pardomuan and Ho Binh Minh
SINGAPORE/HANOI, April 9 After years of massive
expansion, tearing up forests and swallowing land in
neighbouring countries to create rubber plantations, Vietnam is
reaping what it sowed: a swelling of output that has made it the
third-largest rubber producer.
Later this year rubber farmers will tap maturing trees from
new plantations, but with global oversupply and limited storage
capacity, Vietnam's burgeoning output could spark a price war in
a market already at multi-year lows.
With little prospect of government intervention to support
prices, Vietnam's rubber farmers will have little choice but to
sell, shrugging off industry pleas to hold back and making other
leading suppliers, Thailand, Indonesia and Malaysia, nervous.
"Of course we are worried," said Edy Irwansyah, executive
secretary of the North Sumatran branch of the Indonesian Rubber
Association, which groups exporters in the world's
second-largest producer after Thailand. "If supply and demand
don't match, then it will definitely weigh on prices."
In 2001, a rebound in rubber prices from 30-year lows of
sub-50 cents a tonne inspired Vietnam to diversify key
agricultural crops and offer loans at low interest rates to
farmers to plant rubber trees.
Vietnam's state-run rubber companies also opened plantations
in neighbouring Laos and Cambodia. The Vietnam Rubber Group, the
top exporter, reported its rubber area last year rose 9 percent
to 392,000 hectares (968,000 acres), of which 100,000 hectares
were in Laos and Cambodia.
In just seven years, the aggressive state-sponsored rubber
campaign has seen output rise by 60 percent from 2007's 606,000
tonnes, according to data from the Association of Natural Rubber
Producing Countries (ANRPC), in which Vietnam is a member.
This year, output is forecast to hit nearly 1 million
tonnes, said the International Rubber Study Group, which
includes rubber producing and consuming countries and forecasts
And Vietnam's output could rise a further 50 percent near
the end of the decade.
"In the next five years (Vietnam) can move up to 1.5 million
tonnes. Trees are already there waiting to mature. You can't ask
farmers not to tap once they become mature," said Stephen Evans,
secretary-general of the International Rubber Study Group.
Traders well remember 2001 when Vietnam was accused of
flooding the coffee market sending global prices to 30-year
lows. Coffee farmers now curb sales when prices slip below
certain levels, but rubber growers may not have the financial
means to hold back.
"I wonder if you could see this kind of discipline in the
rubber market. I doubt it. It's still a fairly new industry for
them and they still haven't as much money," said Macquarie
analyst Kona Haque in London.
Dealers say there could be price war among the main growers
as production rises, with farmers possibly scrambling to cash in
before any further fall in prices due to oversupply.
"They need cash to feed the family, and they can't afford to
hold back because they are smallholders," said an exporter in
Rubber farmer Nguyen Bao in Binh Duong province, just
outside Ho Chi Minh City, has no intention of holding back his
rubber, citing farm revenues halving in the last two years to
100 million to 120 million dong ($4,700-$5,700) per hectare.
"We do not have alternatives, no other business, so we will
have to stick to rubber. Yield has fallen, but I will not sell
my rubber land," said Bao, who has farmed around 3 hectares
since the 1980s.
Thailand, Indonesia and Malaysia met in February and
recommended they should not sell rubber at the current prices.
It has asked Vietnam to sell less this year.
But efforts to revive prices could hit a snag without
participation from Vietnam, which is not a member of the
International Rubber Consortium. The consortium includes major
rubber producers such as Thailand, Indonesia and Malaysia and
aims to maintain supply-demand balance.
"We have sent a letter to Vietnam Rubber Association, and
they replied, supporting our effort not to sell rubber at low
prices," said Irwansyah at the Indonesian rubber exporters
group. "But whether Vietnam is actually doing it, we need to
check their sales volumes."
Tran Ngoc Thuan, chairman of the Vietnam Rubber Association,
said the association had proposed that members and domestic
entrepreneurs cut natural rubber production in 2014 and avoid
selling at levels lower than international prices.
State media reported last month that many farmers were
cutting down rubber trees in the central highland province of
Dak Nong due to slow sales and a drop in prices.
PRICES UNDER PRESSURE
Although global demand for natural rubber is forecast to
grow by 4 percent in 2014, the market will see a surplus of
373,000 tonnes this year, a fourth year of oversupply, according
Worries over economic growth and demand from China, which
buys 60 percent of Vietnam's rubber, have sent tyre grade prices
on the Singapore Commodity Exchange to their weakest
since mid-2009, below $2 a kg.
The tyre-making industry makes up about 60 percent of global
rubber consumption. Rubber is also used to make gloves, condoms
and products in transport, construction, health and mining.
The global rubber price benchmark on the Tokyo Commodity
Exchange is also languishing near 18-month lows because
of similar fears.
The ANRPC expects Vietnam's exports to fall slightly in 2014
to 1 million tonnes from 1.08 million tonnes in 2013, and while
it said domestic consumption will rise, Vietnam's closing stocks
may hit a four-year high at 54,200 tonnes this year.
And there is no sign production will ease.
Top exporter the Ho Chi Minh City-based Vietnam Rubber Group
said in a March statement it plans to expand rubber planting by
nearly 10 percent to 430,000 hectares (1.06 million acres) by
2015, with at least 100,000 hectares in Laos and Cambodia.
(Additional reporting by Rajendra Jadhav in Mumbai; Editing by
Michael Perry and Ed Davies)