New Thai rubber tax: how the market might adjust

New Thai rubber tax: how the market might adjust


BANGKOK, Sept 20 (Reuters) - Thailand, the world's biggest rubber exporter, implements a new rubber export tax from Oct. 1.
The proceeds of the tax, known as the "cess money levy", will go into a fund to be used for intervening in the rubber market and for supporting farmers if domestic prices drop sharply.
The current export tax is 1.4 baht per kg, irrespective of price.
Under the new regime, the tax will be 3 baht per kg if the price stays between 80 baht and 100 baht, which is roughly the current level. If the price falls below that, the tax will be 2 baht; above 100 baht per kg, the tax will rise to 5 baht.
The tax will not be set each year, or each season. Rather, it will be set by the government twice a month in line with prevailing prices. Exporters complain that will create uncertainty about prices to set on forward deals.
Here is how the market might react from October.

HIGHER COSTS MEAN HIGHER PRICES
At the current domestic price of around 100 baht per kg, exporters would pay 3 baht per kg in tax, up from 1.4 baht now. Many exporters may simply raise offer prices to offset their tax losses.
"No one wants to absorb those higher costs. They need to push it away to others," said a trader in the Hat Yai rubber centre.
Some exporters estimate offers for benchmark Thai smoked rubber sheet (RSS3) could go up 3-5 cents per kg from the market price of $3.50 on Monday.

THAT WILL HURT THAI COMPETITIVENESS
Thai rubber prices could rise to uncompetitively high levels. Prices in Indonesia and Malaysia, the world's second-biggest and third-biggest exporters respectively, are around $3.40 per kg, traders said.
That would result in a drop in exports in the fourth quarter and into the foreseeable future.
The Thai Rubber Association expects exports in 2010 to be flat around the 2.7 million tonne sold in 2009. Thailand exported 2.8 million tonnes in 2008.

FORCE FARMERS' PRICES DOWN
In order to compete with the cheaper rubber from Indonesia and Malaysia, exporters saw very little room for prices to rise.
Instead of raising offer prices, exporters could cut production costs by pushing down the price paid to farmers for unsmoked sheet (USS3).
Although they are already paying 1.6 baht per kg in tax, some exporters are talking about cutting the price paid to farmers for unsmoked sheet by 3 baht from October, thereby recouping all their tax costs if prices remain around present levels.
As a result, farmers would get only 97 baht ($3.16) per kg, down from 100 baht now.

FARMERS MIGHT ACCEPT THIS
Farmers would get lower income but some seem prepared to accept a small drop as long as sales hold up.
"It's OK if we can earn at least 80 baht per kg," said Somdet Khemasuk, chairman of the Rubber Growers Cooperatives Federation of Thailand.
That acceptance may reflect the jump in prices enjoyed by farmers since early 2009, reflected in the pick-up in export prices from a seven-year low of $1.10 per kg in December 2008.
It may also reflect farmers' backing of the new tax regime since it will support an intervention fund. They know that if prices fall too far, the government will have the means to step in and supplement their income. ($1=30.71 Baht)

Source: Reuters



Buyer resistance pulls down sheet rubber


Kottayam, Sept 20

Rubber prices weakened on Monday. On the spot, prices slipped following the declines on the National Multi Commodity Exchange (NMCE). Market activities were comparatively dull as the trend-setting Japanese futures were on long weekend holidays. The trend was mixed. According to dealers, sheet rubber dropped to Rs 165.5 from Rs 166 a kg on buyer resistance. The grade slipped to Rs 166.5 from Rs 167 a kg on the Board's official Web site.

Futures decline

RSS 4 declined at its October series to Rs 165.4 (167.39), November to Rs 165.5 (167.32), December to Rs 167.65 (168.57) and January to Rs 169.51 (170) a kg for RSS 4 on the NMCE. RSS 3 (spot) firmed up marginally to Rs 159.81 (159.63) a kg at Bangkok. Spot rates were (Rs/kg): RSS-4: 165.5 (166); RSS-5: 162 (162.5); ungraded: 159 (159); ISNR 20: 156 (155) and latex 60 per cent: 115 (115).



‘Globalisation impacting rubber use'
Our Correspondent

Kottayam, Sept. 17

The Rubber Board Chairman, Mr Sajen Peter, has said here today that the Indian rubber industry is undergoing transformations owing to compulsions of globalisation which will, in turn, reflect in the consumption pattern of natural rubber.

The fact that, with increasing level of radialisation of tyres, there is a decreasing demand for lower grades of natural rubber, is an example of this change. He was delivering the inaugural speech in the Industry Awareness Programme conducted jointly by the Rubber Board and Bureau of Indian Standards (BIS) mainly for collecting feedback from Natural Rubber (NR) processors and product manufacturers. He has also pointed out that India, till recently, was being considered an NR producing country, which status also is now being changed as a major consuming country.

Mr K Anbarasu, Deputy Director General, Southern Region of BIS, presented the programme objectives. Mr WR Paul, Director, Thiruvananthapuram Branch Office of BIS, Mr P Arumugam, Specification Officer, Rubber Board and Mr KC Chacko, Manager (Quality Assurance, Rubber Board), made presentations on various aspects of quality control and certification for NR industries.

Mr R.C. Mathew, Director and Head, BIS, Thiruvananthapuram, welcomed the gathering and Dr M. Sunny Sebastian, Director (P&PD), Rubber Board, proposed a vote of thanks.