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16 Oct 2008


Unprecedented Nosedive in Rubber Prices: Causes, Impact and Solutions (Business Breif No.2320)

Rubber prices have been on the ebb since early October. The rubber market experienced the fastest drop in history during the first two weeks of October when Natural Rubber Ribbed Smoked Sheet No.3 (RSS3) lost THB20/kg. in value down to THB68/kg. from THB88 previously. Amid continued decline, rubber prices are expected to reach as low as THB40/kg. RSS3 continues to hit new lows in the Agricultural Futures Exchange of Thailand (AFET), where the average price is poised to drop below THB58/kg – last seen at the end of 2006 – due mainly to supply and demand effects. This bearish rubber market in 2008 is attributed largely to ample supply during the harvest season, coupled with the global economic downturn that has hurt car sales and thus affected demand for rubber tires and rubber-based auto parts.

The historically low rubber prices have had a wide-ranging effect on the parties involved, i.e., farmers, traders and exporters, who have lately requested assistance from the government. Over the short-term, a minimum intervention price may be set that is based on actual costs of production. Cooperation may also be sought from Malaysia and Indonesia via the International Rubber Co., Ltd. – a joint venture consortium between Thailand, Malaysia and Indonesia established to support natural rubber prices on the world market – to set export volumes that match changing market conditions via inventory management. Over the long-term, governments and related private agencies should join hands to map out new rubber strategies that are more practical, and take actions in earnest along with continued monitoring. If any hindrances are found, timely remedies should be adopted to bolster Thailand's rubber industry competitiveness in times of global rubber market volatility.

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