Cambodia’s steadily declining rubber prices have hit critically low levels that are destined to only get worse as Thailand prepares to offload huge rubber stocks, the secretary-general of the Association for Rubber Development of Cambodia said Thursday.
As the price of natural rubber has paralleled a global price drop, tumbling to $1,500 per ton, down 31 percent since the start of the year when rubber was selling at $2,200 per ton, Men Sopheak said the industry has been thrown into disarray.
“Falling prices have led to processing factories pausing operations because they are struggling to cover labor costs,” Mr. Sopheak said. “The farmers are getting very little profit and if the price drops further they will be making a loss.”
Approximately 30 to 40 percent of the 60 factories in Cambodia that process raw rubber have suspended operations and farmers are working with narrowing profit margins, he said.
Domestic and world prices have been declining for several years due to concerns of oversupply and slowing economic growth in China, the world’s largest importer of rubber.
Thailand, which supplies a third of global output, announced earlier this month it would sell its vast stockpile of about 200,000 tons, which it had amassed during its state-buying subsidy program in which farmers were paid above-market rates.
Mr. Sopheak said the move would only exacerbate market jitters and further depress rubber prices.
“Thailand’s selling of rubber will push the supply even higher in the international market. This will affect Cambodia’s price because as a country that supplies just five percent of the world we have no choice but to follow the world’s big suppliers,” Mr. Sopheak said.
Rubber exports during the first quarter of this year increased in volume but decreased in value compared to the same period last year. From January to March, Cambodia exported 19,041 tons—worth $37.6 million—compared with 15,018—worth $41.2 million—in 2013.
Mr. Sopheak said that increasing output by expanding Cambodia’s export market was not possible due to the country’s limited resources.
“We can’t increase exports much more because our capacity has reached its maximum. Cambodia’s limited production and unstable supply means it’s difficult to find new destinations to export to,” he said.
Touch Chanthy, the owner of a rubber plantation in Tbong Khmum province, said since December, he has been forced to lower the price of his latex by 50 percent from about 8,000 riel, about $2, per kg to 4,800 riel, about $1.2, this month.
“Even though my workers and I agreed to lower wages, my business is struggling,” he said.
The director of a factory in Kompong Cham province, who declined to be named because she’s not authorized to speak with the press, said her one-ton rubber-processing factory has been operating at a loss.
“I suggest farmers reduce their production so that the supply will reduce and the price gradually increase,” she said.
You Seng, a rubber dealer in Tbong Khmum province, said in order for the industry to strengthen and be less vulnerable to economic shocks, it is necessary to diversify into ventures that would add value to the rubber supply chain.
“The government needs to encourage investors to set up factories here that can process the rubber into ready-made goods such as tires,” she said.