Rubber poser

Malaysian Business,  Apr 16, 2008  by Yvonne Chong

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RUBBER PRICES HAVE BEEN strong for years. The price of the SMR (Standard Malaysian Rubber) 20 closed at 838 sen/kg at the end of March, over a 214% increase from 266.5 sen/kg at the start of the millennium. Prices fell to a low of 183.50 sen/kg for SMR 20 on Dec 11, 2001 but the natural rubber (NR) market has recovered strongly since and is currently at levels rarely attained in the past. The last upsurge of prices was in 2006, when the price of SMR 20 hit the record level of 894.50 sen/kg on July 4, 2006. The average SMR 20 price for 2007 was 758.70 sen/kg or 269% higher than the level of 205.56 sen/kg in 2001.

At the time of writing, the SMR 20 was priced at 836 sen/kg or US 264.90 cent/kg.

World rubber production for the first ten months of 2007 totalled 7.704 million tonnes. During this period, Malaysia ranked third, with output amounting to 1.011 million tonnes or 13.1% of the total. The largest producer was Thailand, with an output of 2.454 million tonnes, followed by Indonesia (2.193 million tonnes).

While surging rubber prices have spurred a renewed interest in the crop, it is affecting the supply of rubberwood, which, in turn, is affecting the local furniture industry. Some 85% of local wooden furniture is made from rubberwood. Exports of rubberwood products, especially furniture and panelboards, were estimated to be about RM7.5 billion in 2007 from RM3.7 billion in 1998, an increase of 103% over the last 10 years.

Within the short period of 2005-2007, rubberwood log prices have shot up 16% from RM130 per tonne to RM155 per tonne. The smaller- sized rubberwood sawntimber (1'x1' - 2'x2') has seen a price increase of about 13% from RM809 in 2005 to RM913 in 2007, while larger-sized sawntimber (3'x3' - 4'x4') rose 15% to RM1,047 from RM907 in 2005.

The Malaysian Rubber Board (MRB) attributes the surging rubber prices to a number of factors. Among them: the high prices of crude oil, speculative activity in the Tokyo rubber futures markets, the strong Chinese economy, good demand for the commodity coupled with low stocks among consuming countries, and movements in currencies.

`The efforts by the governments of the three NR-producing countries of Thailand, Indonesia and Malaysia under the Tripartite Co-operation programme in managing the production and reducing exports have also created the right atmosphere to help steer prices upwards from 2002,' MRB says.

Analysts see the rubber price trend as cyclical in nature, typically peaking every two years or so.

`The cycle happened in 2006, when prices surged above RM6.80/kg, and then went down to RM3.80. And prices have not peaked yet,' says OSK analyst Thong Pak Leng.

Rubber glove-makers believe that however high the price for NR rises, it will also fall and prices will unlikely exceed that of synthetic rubber. However, the surging prices for butadiene, the main raw material for synthetic rubber, is likely to keep NR prices on their upward trend.

The main factor that is affecting rubberwood supply in Malaysia is the declining size of rubber estate/smallholder plantation area. Most of the land which was previously planted with rubber trees has been converted to oil palm plantations since palm oil commands better prices compared to latex, resulting in reduced supply of rubberwood sawntimber.

Supply is further squeezed when plantations put off felling old trees to take advantage of prevailing strong rubber prices.

The rubber tree (Hevea brasiliensis) is mature for tapping when the girth of the tree at the height of 150cm reaches a 45-cm circumference. According to MRB, a number of new clones - especially some of the new RRIM 2000 series clones - mature faster, have higher yields and are productive for longer periods. As long as the renewed bark is thick enough, the trees can be tapped profitably.

When latex yields decrease to a point that it is no longer commercially viable to tap the trees for latex, rubber trees are cut/ felled as rubberwood logs. This traditionally occurs after the trees pass 25 years old. However, due to the high price of the commodity, it is now seen to be commercially viable to tap rubber trees beyond their normal `retirement' age.

The Malaysia Timber Industry Board (MTIB) notes that since 2006, smallholders/estate owners have delayed felling old rubber trees for replanting purposes. New tapping techniques and improved plantation management have also extended the tapping period for a tree.

According to the Department of Statistics Malaysia, the ratio of total production to total area tapped in January 2008 was 151.9 kilogramme per hectare. Compared with December 2007, productivity rose 18.7%. Year-on- year, productivity also recorded an increase of 4.5%.

Statistics from MRB show that among smallholders, the replanting of rubber to rubber in 2007 was 23,152 hectares. It is the government's policy that 40,000 hectares will be replanted annually, of which 20,000 hectares will be replanted to rubber. The rate of replanting rubber to rubber in smallholdings during 2005-2007 ranged from 20,600 ha to 23,100 ha. There were no records for the estate sector.