According to Thailand Agriculture Ministry, the government approved a 15 billion baht budget plan to prop up rubber prices and the ministry are looking to buy 200,000 tonnes or more to shore up prices
The government agreed to buy unsmoked rubber sheet (USS3) from farmers at 120 baht per kg, up from the market price of 90 baht at the end of 2011.
The benchmark Tocom rubber contract, which sets the global trend has risen around 15 per cent since January 11, when the government and farmers said they had agreed on an intervention plan.
Thai Rubber Association said government’s plan would keep export-grade RSS3 above $4 per kg but would not say whether he though the price could go back towards the record of $6.40.
Prices immediately moved higher although some traders wondered how long that would last, given that demand is usually low at this time of the year and may remain weak in the next few months because of the slowdown in the global economy.
There were also question marks over the capacity of the Thai government to intervene. It would need some 24 billion baht, around $763 million, if it wanted to buy 200,000 tonnes of rubber at 120 baht per kg, well above the 15 billion baht approved.
In addition to its rubber intervention, the government is committed to buying rice at a price way above market rates, at a cost of up to 50 billion baht. It also needs to find up to 350 billion baht for a series of water management and flood prevention schemes after devastating floods last year.
The price of benchmark export-grade smoked rubber sheet (RSS3) halved from a record high of $6.40 (RM1.90) per kg in February 2011, hitting a low of around $3.40 this month. That has dragged down the price of unsmoked sheet, which farmers sell to rubber factories, and farmers have staged protests to demand the government intervene.
Unsmoked sheet was quoted at 110 baht per kg yesterday. RSS3 was offered at $4.00 per kg, having risen recently in anticipation of the intervention scheme and because of limited supply, with many operators in the main producing countries, Thailand, Indonesia and Malaysia, on Lunar New Year holidays.
Thailand produces around 3.0-3.2 million tonnes of rubber a year, so the 200,000 tonnes represents about 6.5 per cent of output. It exports around 2.8 million tonnes a year, around 36 per cent of the global rubber trade, according to the Association of Natural Rubber Producing Countries (ANRPC), which groups countries accounting 92 per cent of world output and exports.
Supply starts to tighten in Thailand at this time of year, with the dry season approaching, and traders said prices could rise later this week when the Lunar New Year holidays end.
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