The world's biggest rubber producing region has insufficient funds to intervene in the market to stem a price slide that has pushed rubber futures to multi-year lows, Asian officials and traders said.
Tokyo rubber futures have plunged more than 25% this year, hovering near their lowest in more than four years, while physical prices on Singapore's Sicom are languishing near five-year lows.
Market confidence has been dented by a weaker economic outlook in top market China and swelling global inventories, while top producer Thailand has announced plans to sell 200,000 tonnes from its stockpiles.
The International Rubber Consortium (IRCo) grouping Thailand, Indonesia and Malaysia – who together account for more than 70% of global natural rubber output – appears hamstrung by a lack of cash and political will.
"There aren't many options on the table. The three countries have to pump money into IRCo to do the stock management. It will run into billions, so it is not feasible at this juncture," said a source at the Malaysian government.
"Thailand's government is in caretaker mode, Indonesia is in election mode. I don't think anything will move now. These are the two major players that have to call the shots," said the official, who declined to be identified due to the sensitivity of the issue.
Indonesian officials suggested that Thailand should take the lead in any proposal, but the ousting of Prime Minister Yingluck Shinawatra has deepened the country's six-month long political crisis.
"I am not blaming Thailand, but it is the biggest rubber producer. Funding has become a problem because Thailand can't give its commitment when the government is in a transition," said Indonesia's trade minister Muhammad Lutfi.
Indonesia today suggested IRCo could be expanded to include other rubber producing countries such as Vietnam, Cambodia, Laos and Myanmar.
Tools available to the alliance include curbing exports, reducing tapping by farmers or buying rubber for stockpiling and sale at a later date.
Traders say the alliance has been undermined by a lack of trust among its members, as well as a lack of funds, and its most recent call to limit sales at current prices has fallen on deaf ears.
The three nations last acted in 2012-13 when they agreed to remove 300,000 tonnes, or 3% of 2012 global output, from the export market.
However, the intervention only briefly supported prices and Indonesia publicly called for the pact to be discontinued.
Dealers said the current situation was more severe.
Global natural rubber stocks are estimated to rise about 10% to 3.21 million tonnes at end-2014, according to figures from the International Rubber Study Group, about 27% of global output.
Stocks in Thailand, Indonesia and Malaysia are estimated by the Association of Natural Rubber Producing Countries at about 715,000 tonnes.
"The only thing that can stop the slide is for world stocks to get depleted and demand starting to outstrip supply," said a dealer in Singapore. – Reuters, May 9, 2014.