10/04/2010

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MALAYSIA: Rubber prices expected to increase further

The new situation further underscored the severity of low NR supply, Jacob said, adding that this also reflected the strong baht and ringgit influence on the NR market.As at last Friday, the price of SMR 20 had shot up by 68% to RM10.72 per kg compared with last year's average of RM6.38 per kg. The price of latex-in-bulk also jumped by 65% to RM7.40 per kg from RM4.48 per kg a year earlier.While the uptrend in NR prices may bring cheers to producers, persistently strong headwinds of high latex costs, a weak US dollar against the ringgit and a potentially pricier natural gas due to reduced subsidies do not bode well with local rubber product manufacturers.The world's second largest rubber glove maker, Supermax Corp Bhd, said that for local glove players to stay competitive with its peers from Thailand and China, the ideal latex prices should be RM5.60 to RM6 per kg compared to the current RM7.30 per kg level.Executive chairman and managing director Datuk Seri Stanley Thai told local press reporters: "In the past, we (glove makers) are able to easily pass on the high raw material costs to consumers."For example, due to the volatility in latex prices, there have been four to six price adjustments on rubber glove prices last year."While demand in the second half of this year may seem flat on talk of a potential supply glut, Thai still believed that demand for rubber gloves would be robust, with the EU and the United States remaining the largest export markets for local glove makers.However, Thai said the rising latex price was the least of glove players' concerns right now."We are mostly worried over the continued appreciation of ringgit against the US dollar and other currencies like the yuan and baht."If the situation continues, local glove players will be facing further margin squeezes," he added.Thai expected profit margins of the local glove industry this year to drop by 11% to 13% after a superb performance in 2009 due to the H1N1 pandemic scare."However, I think industry players will still be able to deliver higher profits in terms of ringgit value despite the margin squeeze," he said.A source from a prominent rubber processing group admitted Malaysia was experiencing scarcity in local supplies due to the erratic weather situation and reduced total hectarage due to replanting and conversion to other crops such as palm oil.The source said: "Even though local rubber processors can buy from Thailand and Indonesia, the landed rubber price at local factories will be higher than locally supplied raw materials.""Most people were also taking a wait-and-see attitude due to a new cess being introduced by Thailand from 1 Oct.The tier system which can see cess as high as five baht per kg being imposed on rubber to be exported," the source added.The source also said the shortage would get worse towards year-end because of the monsoon season.In Malaysia, the three major rubber processors are Lee Rubber, Felda Group and Mardec Bhd."The best rubber price for rubber processors should be in the region of RM6 to RM7 per kg," the source said, adding that higher rubber prices would mean higher financing costs to buy the raw materials.Higher prices also unfortunately would result in some raw material suppliers contaminating the rubber with non-rubber items to get the weight and thus more revenue."This unethical act will affect the quality of the Standard Malaysian Rubber (SMR) grades and damage the reputation of SMR built over the years."Too low a price, conversely, will cause the rubber smallholders to stop tapping," the source added. Smallholders currently contributed about 64% of the country's total rubber production.The source said it was therefore imperative for the industry that prices were stable and reasonable for all parties, which "currently is not the case."Source: Daily "The Star", Kuala Lumpur; 4 Oct 2010
(Syed Rashid Ali, Karachi, Pakistan)

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