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 Later this year rubber farmers will tap maturing trees from new
plantations, but with global oversupply and limited storage
capacity, Vietnam's burgeoning output could spark a price war in a
market already at multi-year lows.
With little prospect of government intervention to support prices,
Vietnam's rubber farmers will have little choice but to sell,
shrugging off industry pleas to hold back and making other leading
suppliers, Thailand, Indonesia and Malaysia, nervous.
"Of course we are worried," said Edy Irwansyah, executive secretary
of the North Sumatran branch of the Indonesian Rubber Association,
which groups exporters in the world's second-largest producer after
Thailand. "If supply and demand don't match, then it will definitely
weigh on prices."
In 2001, a rebound in rubber prices from 30-year lows of sub-50
cents a ton inspired Vietnam to diversify key agricultural crops and
offer loans at low interest rates to farmers to plant rubber trees.
Vietnam's state-run rubber companies also opened plantations in
neighboring Laos and Cambodia. The Vietnam Rubber Group, the top
exporter, reported its rubber area last year rose 9 percent to
392,000 hectares (968,000 acres), of which 100,000 hectares were in
Laos and Cambodia.
In just seven years, the aggressive state-sponsored rubber campaign
has seen output rise by 60 percent from 2007's 606,000 tons,
according to data from the Association of Natural Rubber Producing
Countries (ANRPC), in which Vietnam is a member.
This year, output is forecast to hit nearly 1 million tons, said the
International Rubber Study Group, which includes rubber producing
and consuming countries and forecasts supply-demand outlook.
And Vietnam's output could rise a further 50 percent near the end of
the decade.
"In the next five years (Vietnam) can move up to 1.5 million tons.
Trees are already there waiting to mature. You can't ask farmers not
to tap once they become mature," said Stephen Evans,
secretary-general of the International Rubber Study Group.
PRICE WAR?
Traders well remember 2001 when Vietnam was accused of flooding the
coffee market sending global prices to 30-year lows. Coffee farmers
now curb sales when prices slip below certain levels, but rubber
growers may not have the financial means to hold back. <COF/AS> <COF/VN>
"I wonder if you could see this kind of discipline in the rubber
market. I doubt it. It's still a fairly new industry for them and
they still haven't as much money," said Macquarie analyst Kona Haque
in London.
Dealers say there could be price war among the main growers as
production rises, with farmers possibly scrambling to cash in before
any further fall in prices due to oversupply.
"They need cash to feed the family, and they can't afford to hold
back because they are smallholders," said an exporter in Indonesia.
Rubber farmer Nguyen Bao in Binh Duong province, just outside Ho Chi
Minh City, has no intention of holding back his rubber, citing farm
revenues halving in the last two years to 100 million to 120 million
dong ($4,700-$5,700) per hectare.
"We do not have alternatives, no other business, so we will have to
stick to rubber. Yield has fallen, but I will not sell my rubber
land," said Bao, who has farmed around 3 hectares since the 1980s.
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Thailand, Indonesia and Malaysia met in February and recommended
they should not sell rubber at the current prices. It has asked
Vietnam to sell less this year.
But efforts to revive prices could hit a snag without participation
from Vietnam, which is not a member of the International Rubber
Consortium. The consortium includes major rubber producers such as
Thailand, Indonesia and Malaysia and aims to maintain supply-demand
balance.
"We have sent a letter to Vietnam Rubber Association, and they
replied, supporting our effort not to sell rubber at low prices,"
said Irwansyah at the Indonesian rubber exporters group. "But
whether Vietnam is actually doing it, we need to check their sales
volumes."
Tran Ngoc Thuan, chairman of the Vietnam Rubber Association, said
the association had proposed that members and domestic entrepreneurs
cut natural rubber production in 2014 and avoid selling at levels
lower than international prices.
State media reported last month that many farmers were cutting down
rubber trees in the central highland province of Dak Nong due to
slow sales and a drop in prices.
PRICES UNDER PRESSURE
Although global demand for natural rubber is forecast to grow by 4
percent in 2014, the market will see a surplus of 373,000 tons this
year, a fourth year of oversupply, according to Macquarie.
Worries over economic growth and demand from China, which buys 60
percent of Vietnam's rubber, have sent tire grade prices on the
Singapore Commodity Exchange to their weakest since mid-2009, below
$2 a kg.
The tire-making industry makes up about 60 percent of global rubber
consumption. Rubber is also used to make gloves, condoms and
products in transport, construction, health and mining.
The global rubber price benchmark on the Tokyo Commodity Exchange is
also languishing near 18-month lows because of similar fears.
<RUB/T>
The ANRPC expects Vietnam's exports to fall slightly in 2014 to 1
million tons from 1.08 million tons in 2013, and while it said
domestic consumption will rise, Vietnam's closing stocks may hit a
four-year high at 54,200 tons this year.
And there is no sign production will ease.
Top exporter the Ho Chi Minh City-based Vietnam Rubber Group said in
a March statement it plans to expand rubber planting by nearly 10
percent to 430,000 hectares (1.06 million acres) by 2015, with at
least 100,000 hectares in Laos and Cambodia.
(Additional reporting by Rajendra Jadhav in Mumbai;
editing by
Michael Perry and Ed Davies)
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