Transcript 03. 15 Jun 07_The Ro..

The Role of IRCo in NR Prices Stabilization
Presented at
International Rubber Conference & Exhibition (IRCE) 2007
by
Yium Tavarolit
Chief Secretary and Economist
International Rubber Consortium Limited (IRCo)
Venue
Bali International Convention Center, Nusa Dua, Bali, Indonesia
15 June 2007
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The Signing Ceremony of Memorandum of Understanding (MoU)
of IRCo on 8 August 2003 in Bali
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1. Introduction
•
Natural rubber (NR) was first used by the indigenous
people of the Amazon basin for a variety of purposes
before it was introduced to the auto-industry in 1888.
NR was traded like other commodities at least 75
years ago.
•
In 1900 – 1910, NR prices rose sharply because its
demand was higher than its supply and Brazil was
only the major NR producing country supplying
around 90% of the total production.
•
After 1910, due to the emergence of Southeast Asian
plantations, NR prices were pulled down by the
increase in NR supply.
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 Period of Suffering (1980 - 1999) for RubberSmallholders
In 1980, International Natural Rubber Organization
(INRO) was formed under the agreement between major
NR producers and consuming countries to stabilize NR
prices. It started operation with high expectation, but
collapsed in late 1999 because
• Global economic recession after 1995 through 2001
that effected the tire and auto-industries
• Economic crisis in Asia in mid - 1997 forced many
Asian countries to devalue their currencies
including Malaysian Ringgit, Indonesian Rupiah
and Thai Baht
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• The Daily Market Indicator Price (DMIP) stood
above the Lower Intervention Prices most of the
time making it unnecessary for INRO to intervene
in the market. This has exposed the weakness of
INRO mechanism when Asian currencies became
weaker
• Major NR producers could not contribute funds to
INRO due to their national economic weaknesses
that lowered financial liquidity of INRO
• Malaysia and Thailand decided to withdraw from
membership in 1999
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 Unusual Phenomenon
• Coming to the years 1995 – 2007, if we take a look at
the annual global GDP growth, it rose steadily from
1995 until 2000 before falling sharply in 2001. It
rebounded again in 2002 and peaked in 2004. It
declined slightly in 2005, but bounced back in 2006. In
2007, it is expected that the global economy will be
slightly lower than 2006 (IMF).
• In contrast, the average NR f.o.b. price of SIR20,
SMR20, STR20 and RSS3 peaked in 1995 and started
falling gradually to the bottom in late December 2001.
It showed a divergence between the annual global GDP
growth and the NR prices during 1996 – 2000, but a
convergence during 2002 to 2007.
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2. The New Era of Tripartite Rubber Countries
• After the last fall of NR prices in late 2001, the major
NR producing countries namely Thailand, Indonesia,
and Malaysia decided to cooperate in producing
adequate and orderly supply of NR on a continuing
and long-term basis to ensure fair and remunerative
income for rubber smallholders.
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• The three countries signed the Joint Ministerial
Declaration (Bali Declaration) 2001 on 12 December
2001 in Bali, Indonesia to implement two measures
below: Supply Management Scheme (SMS); to cut back
4% in NR production for the year 2002 and 2003
 Agreed Export Tonnage Scheme (AETS); to cut
back 10% in exports for the year 2002
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• The simple economic principle of “the Balance of NR
Demand and Supply” is applied to sustain the rubber
price.
• In principle, the three countries tried to shift SS1 to
SS2 in order to raise the rubber price from OP1 to
OP2 during 2002 – 2003.
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Mechanism of Rubber Supply Management
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• At the same time, the three countries formed
“International Tripartite Rubber Council: ITRC,”
which comprises representatives from the respective
countries to manage and implement the above two
measures and other measures until the present.
• After the passage of the two supply measures in 2003,
the three governments still keep the two measures on
hold and realize that there should be a marketing
support to stabilize NR prices in the future.
• On 8 August 2003, the three countries signed the
Memorandum of Understanding (MoU) and formed
“International Rubber Consortium Limited: IRCo” on
28 April 2004 to play the role of “a Rubber Price
Stabilizer” in the world market.
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3. How IRCo Stabilize NR Prices?
• IRCo will use appropriate marketing tools and
measures to stabilize the NR prices if and when
necessary under the principle of mutual benefits for
both producers and consumers.
• Suitable tools and/or measures will be disclosed when
IRCo has to tackle the rubber market.
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• For the time being, IRCo has set three Key
performance Indicators (KPIs) as follows: Alert Price: is the 14-Daily Composite Price (DCP)
of IRCo that signals and warns ITRC and IRCo to
be ready for AETS implementation
 Trigger Price: is the 14-DCP that ITRC and IRCo
have to prepare for implementation of AETS
 Reference Price: is the 14-DCP that IRCo has to
implement the Strategic Market Operation (SMO)
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Benchmarks of Rubber Price Management
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4. MIS of IRCo
Rubber Database storing on IRCo’s Website
Supply
Demand
Prices
Production
Costs
Stocks
Economy
Finance
Data Processing by Computer Softwares
2007
Others
2008
- Text
- Graphic
- Multimedia
- Statistics
Analytical Reports
NR, SR, Forecast
SMS, AETS, SMO
Tire
Automobile
Relevant reports, articles, proceedings, etc
ITRC
IRCo
NTRCs
Management
Office
Indonesia
Malaysia
Thailand
Governments
Indonesia
Malaysia
CSMO
Thailand
BoDs
Vietnam
Shareholders
Vietnam
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5. Conclusion
Finally, we would like to say that the cooperation on
rubber among Indonesia, Malaysia, and Thailand since
2001 to the present under the supply and marketing
management of ITRC and IRCo is successful in
stabilizing and sustaining the rubber prices and
improving quality of lives, particularly rubber
smallholders in the tripartite rubber countries. In
addition, we also welcome Vietnam to a member of
ITRC soon.
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