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Malaysia plans rubber roads as producers struggle to lift prices

[Kuala Lumpur] Malaysia plans to build rubberised roads from 2015 in a bid to boost domestic consumption and shore up battered prices of rubber, after a price-floor plan by major producing nations proved tough to implement among farmers desperate for cash.

Feeble demand in an amply supplied market has already pushed down rubber prices to below production costs and sent benchmark futures to a five-year low, forcing No 2 producer Indonesia to urge suppliers to not sell at less than US$1.50 per kilogram.

While third-biggest rubber grower Vietnam became the latest, after other major players Thailand and Malaysia, to support the minimum-price plan, scepticism remains on how effective it will be as similar acts of co-ordination have failed before.

Members of the Association of Natural Rubber Producing Countries (ANRPC), which together account for more than 90 per cent of global natural rubber output, met in Kuala Lumpur on Monday and they did not appear any closer to coming up with a more drastic measure than the US$1.50/kg minimum price. "The problem is many sectors of the population have no alternative means to sustain themselves, apart from rubber. They have to sell whatever they can get," said Widyantoko Sumarlin, general manager of the business development unit of Kirana Megatara Group, Indonesia's largest producer of crumb rubber. "If it relies solely on the willingness, then in principle it should work. But historically, if there is no mechanism to bind others, or procedures to allow one to cross monitor, then it is difficult," Sumarlin told Reuters at the ANRPC meet.

Benchmark rubber futures on the Singapore Exchange remained below US$1.50 on Monday, trading at 146 US cents per kg, not far above the Oct 1 trough of 137.40 US cents which was its weakest since March 2009.

In Malaysia, some farmers have begun abandoning their rubber plantations due to weak prices. "Prices are too low and they don't cover the cost of production. The impact on smallholders will be bad, they could start shifting away from natural rubber," said a delegate from Malaysia who declined to be named.

The Malaysian government is looking to increase domestic consumption of rubber by constructing rubberised roads from June 2015, officials said, in the less developed areas of Sabah and Sarawak in East Malaysia.

Top producer Thailand, which announced similar plans earlier this year to use rubber for roads, pavements and reservoirs, uses 3.3 tonnes of natural rubber for every 1 kilometer of road.

In Vietnam, growers are reducing their cost of production and halting new planting in response to falling prices, said Le Dinh Yu, deputy director of the export-import department of the Vietnam Rubber Group.

Thai and Malaysian rubber producers earlier this month backed the floor-price plan by the Indonesian Rubber Association (GAPKINDO), that have barely lifted prices as sellers kept unloading cargoes below that level. "We are requesting the processors not to sell below US$1.50. But this is something we cannot force," said Salmiah Ahmad, director general of the Malaysian Rubber Board.

As a group, ANRPC is looking at elevating the representation in the association to the ministerial level, hoping that will ensure stronger implementation of measures.

Global rubber prices have sunk around 35 percent this year on a supply glut and slow growth in demand from top consumer China. Previous efforts to rescue prices have also failed.

Indonesia, Thailand and Malaysia, which are grouped under the International Rubber Consortium, last acted jointly in 2012-2013, agreeing to cut exports by 300,000 tonnes, or about 3 percent of 2012 global output.

Rubber prices rose temporarily at the time before sliding again due to fears that the debt crisis in Europe could derail demand. Indonesia later called for the pact to be discontinued. "The question in all our minds is whether the current low prices for natural rubber is over," said Douglas Uggah Embas, Malaysian Minister of Plantation Industries and Commodities. "The current scenario is contributed by among others, the lack of a mechanism at the multilateral level to regulate the supply side of natural rubber." REUTERS