Top rubber producers join forces, plan to boost prices

Big Asian rubber producers, including world No. 1 Sri Trang Agro-Industry Plc, said they plan to hike prices sharply, ditching a system of pegging them near the benchmark set by the Singapore SICOM exchange.

The producers are set to charge a significant premium over the exchange-traded futures contract from the second half of 2015, a move that marks a radical change in an industry where plummeting prices have hit farmers badly.

The step could spur a recovery in global prices that have languished near their lowest since 2009 due to a chronic glut and disappointing demand from top consumer China.

“Prices of SICOM no longer reflect the real cost of rubber production,” a spokesman from Thailand-based Sri Trang told Reuters in an email, adding that the company would also stop delivery to the bourse.

“We have no intention of manipulating prices. All we are looking for is to get a fair and equitable price reflecting the cost of production.”

Producers are meeting with tyremakers and other consumers on Wednesday to discuss the changes, sources said.

Sri Trang has an annual production capacity of 1.2 million tonnes, exceeding the entire output of No. 3 national rubber producer Vietnam.

Sri Trang’s move was similar to plans by another major rubber producer, Halcyon Agri Corp Ltd.

Halcyon Agri and Sri Trang together account for nearly a fifth of global rubber output.

Halcyon Chief Executive Robert Meyer said other Indonesian producers were doing the same.

“There is a dislocation between SICOM prices and actual physical prices,” Meyer told Reuters in an interview. Physical rubber prices are already 3-4 cents per kilogram higher than SICOM prices, he said.

Officials from Singapore Exchange, which owns SICOM, were not immediately available for comment.

GO DIRECT

Producers will negotiate directly with end-consumers such as tyremakers instead of going through intermediary dealers, Meyer said.

Other Thai growers Southland Rubber, Thai Hua Rubber and Sri Trang affiliates Rubberland Products and Num Hua, have informed the Thai Rubber Association they were taking the same steps, the industry group said in a statement to Reuters.

The Indonesian Rubber Association (GAPKINDO) has also thrown its support behind the measures, and has asked its member companies to do the same, said chairman Daud Husni Bastari.

Major buyers such as Bridgestone Corp and Goodyear Tire and Rubber Co have the flexibility to secure their raw material supply from wherever they see fit.

“If it’s really a clear commercial reason we’ll treat it as a commercial reason,” said an official for a company who buys rubber for a global tyremaker.

“It’s the same case as any previous long-term negotiations that we’ve had, there’ll always be those having higher premiums than others and it’s up to us who we choose to partner with.”