KUCHING: Analysts are neutral on Malaysian government’s plans to use 10 per cent of its natural rubber latex output for roadbuilding from 2016.
AmResearch Sdn Bhd (AmResearch) in a report, noted that a similar proposal had been made by the Thai government last year.
“Back in August 2014, it announced plans to increase the domestic consumption of rubber (for example in the construction of infrastructure) from 14 per cent to 20 per cent instead of engaging in costly market buybacks (such as back in 2012) to stabilise prices,” it explained.
The research team added, “The moves are attempts by the respective governments to support the price of the commodity following a prolonged supply glut.
“The Association of Natural Rubber Producing Countries (ANRPC) expects the glut to continue in 2015 at 10,000 metric tonnes although The Rubber Economist projects a fall in global stockpiles, which peaked at three million metric tonnes in 2014.
“Thailand is the world’s largest producer of rubber followed by Indonesia and Malaysia (collectively approximately 70 per cent of world output).
“However, Vietnam’s (which recently became the fourth member of the International Tripartite Rubber Council) and Cambodia’s exports are on the rise in view of their maturing plantations.”
It pegged a neutral view on the recent announcement by Malaysia’s government as the country’s share of rubber output is already on a downward trend.
Hence, the research team believed a reduction in its exports would not significantly impact global prices.
“More importantly, however, we note that the domestic rubber glove manufacturers primarily source their latex from Thailand,” it added.
On the prices of rubber, AmResearch explained, rubber prices had rallied by 36 per cent this year to reach a high of RM5.13 per kilogramme on June 5 on the back of concerns over the El Nino, which is expected to be severe in the second half.
“Its impact is however, inconclusive as during the 1982 to 1983 and 1987 to 1988 events, no significant decline in production and rise in prices were observed.
“But during the 1997 to 1998 episode, the IRSG had noted a slowdown in output growth in 1997 to 0.4 per cent from six per cent in 1996,” it said.
“That said, we note that prices had reversed in the past weeks, falling six per cent as demand – especially from China – slows and Thai rubber production rebounds by 30 per cent to more than 200,000 tonnes a month in June and July after the low production periods of April and May,” AmResearch commented.
Overall, it maintained an ‘overweight’ on sector as it believed that the current natural rubber latex price levels of circa RM5 per kilogramme remains palatable to the rubber glove manufacturers, and hence, it does not expect the recent increase in price to significantly dent their earnings.