Upon strong demand from China rubber production is expected to rise
As prices rally abroad due to surging demand from China and scarce supplies, Cambodia’s rubber is being undersold internationally due to a lack of available market data, experts say.
Natural rubber reached $5,011.5 per ton at 5.00 pm yesterday on the Malaysian Rubber Exchange, an increase of around 50 percent for the year. And on the Tokyo Commodity Exchange yesterday the June-delivery settled at 407.8 yen per kilogram, or $4,949.2 per ton.
But Ly Phalla, director general of the Agriculture Ministry’s General Directorate of Rubber, said the price of rubber being exported from Cambodia is currently being sold for at least 10 percent less than in other rubber producing countries such as Malaysia.
Part of the reason for this, he said, is because farmers have little access to accurate market data. There are also few means for farmers to store rubber and organize futures contracts while the price remains is high.
“The price in Malaysia is the price of longer-term contracts. In Cambodia we sell immediately,” he said, adding Cambodian natural rubber is currently being sold for around $4,500 per ton.
While heavy rains in major rubber-producing countries like Thailand and India have reduced supply there is still strong demand coming from China, experts say.
According to a report released on Monday by the Association of Natural Rubber Producing Countries, rubber supply worldwide is projected to fall by 6.3 percent in the fourth quarter of this year. Yet rubber consumption in China increased by 8.6 percent this year.
Mr Phalla said that his department was considering making a request to the government to agree to a proper regulatory body in order to make sure that the price of rubber in Cambodia is consistently in line with fluctuations on international markets and that the correct price is disseminated to farmers.
“We will submit a proposal to the government to set up an office near to neighboring countries to control the quantity and the prices,” he said.
Currently, the General Directorate of Rubber has no oversight of rubber exports and has no say in what price it eventually trades at.
Hiroshi Suzuki, chief economist for the Business Research Institute for Cambodia, said a regulatory body in Cambodia would help farmers to increase their negotiating skills with traders and avoid loosing out when prices on world markets increase.
“The small-scale farmer does not have access to information,” he said. “If they know the price every day maybe they could have more negotiating powers.”
Cambodia’s rubber industry is made of a mixture of large-scale companies who employ contract farmers and smaller scale farmers who operate on an individual basis. For many farmers of the latter kind there is no means of learning accurate prices for commodities.
Mak Kimhong, president of the Association for Rubber Development of Cambodia, said that while making market data available to farmers would help create a more transparent industry, he also expressed fears that buyers would stop coming if they were not allowed to dictate their own prices.
“If the association announces the price the buyer doesn’t come and buy,” he said. “The buyers are always challenging the price.”
Despite the issues regarding pricing regulations, the government is pushing forward with the development of the rubber sector on the back of speculation that demand for the commodity will remain strong.
Government data show that productive rubber plantations have increased by 22.5 percent to 166,600 hectares in 2010. And that number is expected to keep on rising.
According to the Association of Natural Rubber Producing Countries, Cambodia is projected to plant another 14,000 hectares in 2011.
Natural rubber production in Cambodia is projected to increase by 40.8 percent to 45,000 tons this year, and in 2011 the government is targeting total production of 63,000 tons.
In September 2009, Cambodia signed a memorandum of understanding with Vietnam, allowing numerous Vietnamese companies to plant 100,000 hectares of rubber by 2012. Around 20,000 hectares of that amount has already been planted.
Cambodia’s Mong Reththy Group has also started planting 5,000 hectares of rubber in Preah Sihanouk province.
Nevertheless, rubber production in Cambodia is extremely small when compared to other countries that produce the product.
By the end of the year Thailand is on track to have exported more than 3 million tons of rubber, while Vietnam is targeting exports around 750,000 tons, according to the Association of Natural Rubber Producing Countries.
(Additional reporting by Hul Reaksmey)