BANGKOK, Oct 4 (Reuters) – Thailand, the world’s biggest rubber producer and exporter, plans to cut annual rubber supply by 120,000 tonnes and will ask other major producers to take action to help prop up prices, senior government and industry officials said on Tuesday.
“We aim to cut rubber supply to push up prices by encouraging farmers to cut down and replant rubber trees on 400,000 rai (64,000 hectares), starting from now, and we would ask for cooperation from Indonesia and Malaysia to take similar action,” said Jirakorn Kosaisawe, director general of the Department of Agriculture.
That would equate to a drop of around 120,000 tonnes in output, said Pongsak Kerdvongbundit, president of the Thai Rubber Association.
Trees take up to seven years to mature and produce latex after planting.
Pongsak said the usual drop in supply during the upcoming dry season together with the replanting plan should stop the benchmark Thai rubber sheet (RSS3) falling below $4.0 per kg this year.
It stood at $4.1 on Tuesday, having fallen from a record $6.4 in February.
Jirakorn said the government would pay farmers 16,000 baht ($512) per rai (0.16 hectare), up from the current 11,000 baht, to encourage them to cut down ageing rubber trees.
“We already have the money collected on rubber exports, around 15 billion baht, so we can start the plan right away,” Jirakorn said, referring to the so called “cess money levy”.
The cess levy is money collected from exporters at progressive rates depending on the price. It goes into the Rubber Plantation Aid Fund, which pays farmers compensation to support them until their trees are mature.
Some traders were sceptical the plan would work. A similar measure was announced at the end of 2008, when the rubber price had fallen to its lowest in nearly seven years at $1.1 per kg.
“We’re getting used to this sort of measure and I don’t think it will have a big impact on prices. You can see that the top producers did not really impose the measure in 2009 and rubber prices rebounded finally because of fundamental factors, supply and demand,” said a trader in Thailand’s Hat Yai rubber centre.
In 2008, Thailand committed itself to cutting down and replanting rubber trees on 64,000 hectares to cut supply in 2009. Indonesia and Malaysia announced similar plans.
However, it eventually cut down only 16,000 hectares as prices had rebounded by mid-2009, meaning farmers preferred to keep on tapping rather than lose trees.
Traders said physical rubber prices could easily rally now due to the seasonal drop in supply in the final quarter and the prospect of strong demand in Asia.
($1 = 31.215 Thai Baht)

Source: Reuters

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