Aug 8, 2011
Natural Rubber Price Hike
...because of slow supply growth and stronger regional currencies boost rubber price
The Association of Natural Rubber Producing Countries (ANRPC) has estimated total world natural rubber (NR) production this year to be at 9.95 million tonnes, up by 4.9% from 9.49 million tonnes last year. In spite of the higher forecast, the association expected NR supply was seen moving up slowly over the past quarters, thus triggering continued recovery in rubber prices.
Members of ANRPC Thailand, Indonesia, Malaysia, India, Vietnam, China, Sri Lanka, the Philippines and Cambodia controlled about 92% of the commodity's global supply.
ANRC in July report said the slow growth in supply, high oil price and strengthening of the baht, rupiah and ringgit can help NR prices to stay strong but the short-term outlook is clouded by uncertainties from the debt crisis in the United States and the eurozone.
However, there are limitations in estimating the area to be uprooted each year from 2012 through 2018. This is because farmers individually make the decision on replanting, and their decision is influenced by factors such as age structure of existing trees, current price and short-term expected prices of rubber and rubber wood, prevailing cost of planting materials and labour and incentives for replanting.
It noted that from 2005 to 2010, the uprooting rate varied from 1.5% to 2.5% of the previous year's yielding areas.
ANRPC expects the uprooting rate from 2012 to be higher, given the low uprooting rate from 2005 to 2010. Farmers largely retained aged trees to take advantage of high NR prices. ANRPC pointed out that a large extent of existing yielding trees were planted during 1980s, which was a boom period of planting. Inevitably, trees planted during that period will have to be uprooted during 2012-2018. On the other hand, it said it was unlikely for the uprooting rate to exceed 5%.
Therefore, the yielding areas from 2012 to 2018 are projected against four different replanting rates, namely 2%, 3%, 4% and 5%. The most likely rates are 3% and 4%. The association added a high rate of uprooting implies that a larger extent of existing yielding areas would be entering the gestation phase spanning seven years. The resultant reduction in yielding areas will be pushing the supply down. On the other hand, a low uprooting rate can minimise the reduction in yielding areas and can contribute to supply.
Other constraints for average yield to improve further, with the exception of the Philippines and Cambodia, include a marked increase in the share of low-yielding non-traditional regions in Thailand, India and Vietnam. (Non-traditional regions are agro-climatically less suitable for growing rubber trees and farmers in those regions are generally new to rubber cultivation and hence unskilled).
Even if rubber prices reach abnormally high levels, there would be limited space to improve yield from existing trees, said ANRPC. This is because farmers have exploited available options as the price has stayed abnormally high in the last couple of years.
ANRPC said there are limits to enhancing the yield in the short term. There have also been reports that yield potential of trees in some regions has been damaged due to unscientific overexploitation of trees in the backdrop of high prices.
Source: TheStarBiz, Monday, August 8, 2011.