By Lewa Pardomuan
SINGAPORE, May 20 (Reuters) – El Nino could potentiallyaffect global rubber output this year but the weather anomalymay not rescue prices from near multi-year lows as worries aboutChina’s economy and ample supply weigh on the market, industrysources said on Tuesday.
Benchmark Tokyo rubber futures have sunk to theirweakest in more than four years on concerns over demand in mainconsumer China, even as output drops in Southeast Asia duringthe dry wintering season, which will end this month.
Global weather forecasters say the likelihood of an El Ninoevent is increasing, which could be a blessing for rubber pricesif the weather phenomenon strikes when the second round ofwintering starts, in July through September, and severely cutssupply.
But some rubber analysts at an industry summit in Singaporewarned against pinning too much hope on El Nino, a warming ofthe surface of the tropical Pacific Ocean that can trigger heavyrains or droughts around the globe.
“If there was a fantastic drought in Thailand or Indonesiafor the whole season and nobody tapped the trees or some of thetrees died, then clearly that would have a pretty negativemessage,” said Stephen Evans, secretary-general of theInternational Rubber Study Group.
“That would make the market react. I could see why peoplehope, but I personally, don’t think that it is relevant.”
But low rubber prices in Thailand, Indonesia and Malaysia,which contribute about 70 percent of global output, haveprompted tappers to either stop tapping or looking for otherjobs.
Despite a recent rebound, the TSR20 contract on Singapore’sSICOM exchange, which covers Thai, Indonesian andMalaysian grades, is still not far from its weakest in nearlyfive years.
The IRSG, which forecasts supply and demand, expects supplyto outstrip demand by 241,000 tonnes in 2014, putting pressureon prices.
“The price of rubber is already too low,” said Asril SutanAmir, adviser to the Indonesian Rubber Association (GAPKINDO).
“Can you imagine that 1 kilo of rubber now only equals halfa kilo of rice? You should be able to get 3 kilos of rice byselling 1 kilo of rubber.”
GAPKINDO expected rubber output in second-largest producerIndonesia to fall around 3 percent to 3 million tonnes this yearbecause of the prospect of El Nino.
Production in top producer Thailand may rise as much as 5percent in 2014, less than the usual rate of 10 percent, butindustry officials stopped short of linking it to the possibleimpact of El Nino.
Industry sources said the rubber market was still at themercy of the state of the global economy and poor demandoutlook.
“We are in a period of, I would say, instability in theindustry. I think it will probably last for another year or twountil we see a shift change in the macroeconomic performance ofthe global economy,” said Evans from IRSG.
(Editing by Clarence Fernandez)
– Reuters
