Bloomberg News

Rubber Growers May Back Physical Market to Set Up Benchmark

December 12, 2011

(Updates with comments from minister in second paragraph.)

Dec. 12 (Bloomberg) -- Thailand, Indonesia and Malaysia, which account for about 70 percent of natural-rubber output, plan to set up a regional physical market to create a new benchmark for the commodity, according to a trade group.

The market would help producers trade with more transparent and reliable prices, Tjahjono Budiarto Tjandra, chairman of the Committee on Strategic Market Operations at the International Rubber Consortium Ltd., said in an interview in Bali today. The countries agreed to take “specific measures” to support prices, Bayu Krisnamurthi, Indonesia’s deputy trade minister, told reporters in Bali after a meeting of representatives from the three governments.

Rubber has slumped in Tokyo this year as Europe’s debt crisis raised concern that demand may drop. The Tokyo Commodity Exchange, which trades that benchmark, is tracking the contract plan. The initiative may involve the Indonesia Commodity & Derivatives Exchange, the Agricultural Futures Exchange of Thailand and the Malaysia Derivatives Exchange, Tjandra said.

“We’re ready to start the rubber contract next year,” Megain Widjaja, chief executive officer of the Indonesia Commodity & Derivatives Exchange, or ICDX, said in an interview.

The three Southeast Asian exchanges and the consortium met in Phuket, Thailand last month to discuss the plan, Widjaja said.

“Although the current rubber price has declined from early 2011, it is still quite high,” Bayu said. “We must be ready for any situation that may further pressure the price.”

‘Similar Plans’

Rubber futures in Tokyo are set for their worst annual performance since 2008, when the global economic recession reduced demand. The contract for delivery in May closed at 277.4 yen per kilogram on Tocom today.

“We will closely watch the development of the issue,” said Fuminori Kondo, a spokesman for Tocom. “We’ve heard similar ideas before. As the three producing countries represent 70 percent of global rubber output, the idea is interesting to us as our bourse trades rubber futures.”

The Agricultural Futures Exchange of Thailand welcomed the rubber plan, which merits further study, according to Chairman Prasat Kesawapitak. “The initiative also needs support from the government to help stabilize the price.”

The International Tripartite Rubber Council -- which represents growers and exporters from Thailand, Indonesia and Malaysia -- last month encouraged members to blacklist buyers who default on purchases. Members may curb exports if necessary to limit supply and boost prices, the group said Nov. 19.

Fundamentals

“There’s a desire from the governments of the three countries to set up a market as soon as possible that would be based on the real supply-and-demand fundamentals,” said Tjandra from the consortium, which represents growers and exporters from Thailand, Indonesia and Malaysia. The contract would most likely trade in dollars, he said.

The regional market may help curb speculation and volatility in prices, Bayu said.

“It’s a producer-driven market and it will need full government support and commitments from rubber growers to be successful,” Widjaja said. “We have a physical tin market, which also came from a producers’ initiative, as a pilot project for such a market in the region.”

The ICDX will start trading a dollar-denominated physical tin contract on Dec. 15, Widjaja said last week. Indonesia is the largest exporter of the metal used to make solder.

“Any new market will face difficulties and challenges to convince people to trade and use the price as a reference, but we have to take the initiative,” Tjandra said. “Now is the right time for this, with economic uncertainty we must have a strong market that is free of speculation to reduce price volatility.”

--With assistance from Supunnabul Suwannakij in Bangkok and Yasumasa Song in Tokyo. Editors: Jake Lloyd-Smith, Thomas Kutty Abraham

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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