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Rubber Producers Move Toward Fighting Price Declines

The Southeast Asian cartel that controls the majority of world’s rubber production is moving toward taking action to stem a price slump.

Officials from Malaysia and Thailand have discussed taking joint action to support prices, the secretariat for the International Tripartite Rubber Council said on its website. That group, which includes Indonesia, Malaysia and Thailand, produces more than two-thirds of the world’s rubber supply. They last took coordinated action two years ago by limiting exports to halt a price slide, though that effort had a limited impact. Rubber prices are down 35% since the beginning of 2014. On Friday, rubber prices fell to lows not seen in more than five years.

The industry has been hit both by oversupply and flagging demand for rubber from China. Analysts say farmers are losing money by growing the crop.

“We are below the cost of production. Even customers are saying that the price is too low,” said Bundit Kerdvongbundit, vice president of Von Bundit Co., which is Thailand’s second-largest producer of natural rubber. He is also the secretary-general of the Thai Rubber Association.

The International Tripartite Rubber Council didn’t say what measures were discussed, but Mr. Bundit said his association has been asked by the Thai government to brainstorm new ideas on how to limit supply and lift prices.

Singapore-based Rabobank analyst Pawan Kumar said any joint action between the countries could help increase rubber prices to $1.80 a kilogram from $1.40 to $1.60 a kilogram on Tuesday. Rubber futures are up as much as 2% this week on optimism about possible cartel coordination.

“Thailand is in the toughest spot” as the military junta is faced with price declines for both rubber and rice, Mr. Kumar said.

Thailand was for a time buying rubber at above-market rates and is providing subsidies for replanting, which cuts short-term production. In addition, they have encouraged farmers to grow palm oil and plan to spend more than $1 billion to help overhaul the rubber industry and provide loans to farmers through state banks.

On the other hand, Malaysia has a large rubber-processing industry that is benefiting from the low prices.

Recent efforts to manage rubber supply have yielded modest success. In August 2012, the three-country cartel imposed a six-month cut in exports after prices fell to a three-year low. Prices initially rose, but they later fell. Earlier this year, the cartel also urged its members not to sell, though prices have continued to fall.

–Nopparat Chaichalearmmongkol and Warangkana Chomchuen in Bangkok contributed to this article.

– WSJ

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