THAILAND: Storms and floods unlikely to dent southern rubber supply - But psychological effect may push prices

The recent storms and floods that ravaged the South will likely have only a minimal effect on the supply of natural rubber, says an agriculture official.

The optimistic outlook comes after a fresh survey of the southern region, the main hub of Thailand's rubber production, by the Agriculture Ministry.

"The floods made a slight impact on rubber land, as did the heavy storms, but the damage is too small to affect supply," said Wit Pratuckchai, director-general of the Office of the Rubber Replanting Aid Fund (ORRAF).

The storms and floods hit 145,650 rai (one rai=1,600 sq m) of southern rubber plantation areas, which Mr Wit said is a tiny amount considering Thailand's total tapping area of 11.6 million rai, of which 83% is in the South.

"Actually, floods can destroy only young trees that are a year or two old, not ones aged, say, seven or eight years," he said. "Much of the damage was caused by hurricane-force winds blowing across more than 58,000 rai of rubber in Phatthalung province."

Although falling supply is not a concern, Mr Wit admitted there could be a psychological effect spurring prices even higher from the current bullish levels due to strong orders from abroad, as users are concerned about a possible thin supply caused by heavy rains impeding rubber tapping.

Domestic prices of ribbed smoked rubber sheets No. 3 (RSS3), a main export product, rose to an average of 110 baht a kilogramme in the first 10 months of this year, from 62 baht last year and 82 baht in 2008, when the oil crisis drove the crude price to a record high of US$147 a barrel.

This week, RSS3 was selling in the Songkhla market for 125-127 baht per kg.

China, the biggest importer of Thai rubber, estimates it will import a total of 8.1 million tonnes of rubber products, mostly RSS3 and compound rubber to support its bullish automobile industry.

The country bought about 40% of Thailand 2.7-2.8 million tonnes of rubber exports last year.

Thailand's industry forecasts prices of and demand for rubber will remain on an upward trend next year thanks to China's upbeat economy.

Mr Wit said the government will pay compensation for damaged rubber fields at the rate of 6,007 baht per rai or about 55% of production costs.

ORRAF members will receive an additional 11,000 baht a rai, with the office making the payout gradually.

Most rubber planting in Thailand is under the supervision of the ORRAF, which manages the industry by paying planters to chop down ageing rubber trees in order to increase productivity.

The office uses the money it collects from export fees, about 10 billion baht last year, to fund its operations including compensating members suffering from heavy flooding.(Syed Rashid Ali, Karachi, Pakistan)