Thailand to halt rubber-buying scheme

BANGKOK: The Thai government will not renew its rubber-buying scheme that is due to expire at the end of March as prices have rebounded to acceptable levels, the Deputy Agriculture Minister said on Tuesday.

The benchmark Tokyo rubber contract, which has gained about 50 per cent over the last six months, dropped to an almost three-week low after the news.

"We don't need it any more as prices have risen to appropriate levels that farmers are satisfied with," the Deputy Minister, Yuthapong Charassathien, told Reuters.

The benchmark Thai smoked rubber sheet (RSS3), which fell to US$2.80 per kg in mid-2012 and prompted the government's intervention, was trading at US$3.30 per kg on Tuesday.

While that was below the record high of US$6.40 per kg hit in February 2011, traders said the market appeared to have come to a level accepted by both sellers and buyers.

Thailand is the world's No.1 rubber producer and exporter.

"I think the timing of this halt to intervention is quite good as we are entering the dry season, when supply is falling," said Chaiyos Sincharoenkul, president of the Thai Rubber Association, adding prices could have surged if the government continued buying when supply became tight.

Another trader also agreed that the halt had been timed well and said: "We can now be certain that the government won't be draining more rubber into the stocks and we should have ample supply to trade during the dry season."

Rubber trees shed their leaves during the dry season and stop producing latex. Rubber supply normally drops by 50 per cent from the roughly 200,000 tonnes the country produces in a typical month outside the dry season.

In Tokyo, the benchmark contract for July delivery fell 10 yen to 314.2 yen per kg, the lowest since February 1.

"Investors liquidated contracts to cut losses after prices fell below major support at 320 yen. The Thai move also added pressure to the market, encouraging players to sell further," said a Tokyo-based dealer.

Yuthapong said stocks held by the government stood at 198,000 tonnes of smoked rubber sheet, down from an almost 200,000 tonnes reported earlier.

"There's around 800-900 tonnes of rubber that has gone rotten as it was kept in unsuitable places," he said.

He insisted that the government would not dump the stocks on the market but would use the rubber as a raw material to build roads and reservoirs.

In addition to its intervention scheme, Thailand joined key exporters Indonesia and Malaysia to restrict shipments and shore up prices from last October. None of the governments has given details on the extent of any cuts.-- Reuters