28th November, 2008 STATEMENT By INTERNATIONAL RUBBER CONSORTIUM LIMITED (IRCo) First and foremost let me congratulate the ANRPC on the auspices occasion of the 31st Session of its Assembly. I am indeed honored to be given this opportunity to make a Statement on behalf of the International Rubber Consortium Limited (IRCo) to this august gathering. There is no escape not talking about the International Tripartite Rubber Council (ITRC) when one is talking about IRCo, or the other way around. Both these bodies come under the ambit of the international tripartite cooperation for natural rubber between If I am not mistaken the first and only time we ever presented ourselves to the ANRPC was at the 13th Meeting of the ANRPC Executive Committee and the Special Session of the ANRPC Assembly at Ministerial Level, in the later part of April In the post-INRO days, way back in the late 1990's, when natural rubber prices continued to be protractedly depressed for most part hovering around US 50 cents/kg FOB, where the residual farmgate prices per kilogram then were said cannot even buy the rubber farmer a decent cup of coffee, the fore Ministers responsible for rubber for these three countries got together. The result were the Joint Ministerial Declaration signed on 12 December 2001, thereafter referred to as the Bali Declaration, and the MOU signed on 8 August 2002, giving birth to the ITRC and IRCo, respectively. Under these two bodies, the three countries pledged to work collectively to ensure fair and remunerative income for rubber smallholders of the three countries. The immediate objective then was to revive natural rubber prices to levels which are remunerative to producers and to manage the imbalance in supply over demand, which has largely resulted in depressed prices. Now the objective is more:
The tripartite cooperation has the Ministerial Committee (MC) as the highest governing body, below which is the ITRC, the Secretariat and the National Tripartite Rubber Councils (NTRC). The NTRCs are to implement and monitor the implementation of the agreed measures at the national level and report to the ITRC, which is the body to oversee and coordinate implementation of the agreed measures to ensure that the targets and objectives are attained. Two schemes were formulated under the ITRC to achieve the objectives of the tripartite cooperation, namely, the Supply Management Scheme (SMS) and the Agreed Export Tonnage Scheme (AETS). The SMS is an on going scheme, implemented with the aim to balance the supply of and the demand for natural rubber in the long term. Mechanisms that can be employed here include replanting, diversification to other crops and tapping holidays when supply needs to be reduced. When supply needs to be increased there can be planting of new areas, use of higher yielding clones and boosting of yield through appropriate exploitation techniques. The AETS, on the other hand, will only be implemented with the aim to address transient imbalance between the supply and demand for natural rubber only. The mechanism to be employed will be withholding sales of export tonnage. The IRCo, which was incorporated as a business concern on 28 April 2004, also reports to the MC and acts as the Secretariat to the ITRC. It was established to undertake strategic market operation (SMO) encompassing buying, selling and managing excess rubber, if required, to strengthen rubber prices in complementing the SMS and the AETS There was constituted under the IRCo, a Committee on Strategic Market Operation (CSMO) with the following functions:
The instrument being used by the ITRC and the IRCo in tracking the market is the Daily Composite Price (DCP) and the 14-Day-Moving Average DCP. The DCP is formulated based on the prices of RSS3, STR20, SMR 20 and SIR20 on established markets and used as determinants in fixing the price thresholds for the implementation of the schemes and measures under the ITRC and IRCo. Ladies and gentlemen, The tripartite cooperation was initiated at a time of depressed prices. The Bali Declaration signed on 12 December 2001 incorporated the immediate implementation of the SMS and the AETS. The 3 participating countries agreed to effect a 4% cut in production for the year 2002 and 2003 through the implementation of the SMS and to abide by the AETS for the year 2002 through a 10% cut back in the exports. Well, to cut it short, what happened to rubber prices thereafter is open knowledge to all. Never has the natural rubber market been able to sustain an uptrend for more than six continuous years. We like to believe that the tripartite rubber cooperation has been a major factor in this phenomenon, albeit there were other equally significant factors too. There was some treacherous moments in late 2006, but the market picked up again within a couple of months. The involvement of hedge funds and the roller coasting prices of crude oil, skyrocketed prices to excessive levels in the middle of 2008, above US $3.00/kg., never seen since the Korean War in 1952 Then came black September 2008. The infamous financial crisis, the collapse of Wall Street that sent a tsunami across the financial and stocks markets around the globe. Unlike a tsunami, this phenomenon lingers on, erasing confidence and contracting economic growth. The world economy is in recession, going into depression, so they said. The rubber market too was not spared, despite its supply demand fundamentals still being strong. What took months or years to happen, happened within a few weeks or days. Within the first two of weeks of October alone, rubber prices eroded by more than 30%. The ITRC and IRCo, whilst acknowledging the situation faced was due to the global financial calamity rather than rubber related factors, foresee global demand for rubber for the rest of 2008 will contract. The surplus by the end of the year will further increase in 2009 because global demand will not picked up. Implementation of both the AETS and the SMO in this situation will only create stock overhang instead of remedying the problem. Appropriate measures under the SMS, therefore, were initiated. The three participating countries had on 29 October agreed that their total annual replanting of They also agreed to decelerate new planting by encouraging diversification to other crops and control of licenses for new plantations. If need be, smallholders will be encouraged to reduce tapping intensity and discourage to use stimulations. As to avoiding disruption in the market due to defaults, the ITRC and IRCo welcomed and endorsed their private sectors' initiatives through the respective trade associations, under the umbrella of the ASEAN Rubber Business Council (ARBC) to: 1. blacklist defaulters and not to trade with them. 2. settle disputes amicably or though arbitration. 3. not to agree to price discounts or cancellation of contracts. We are coordinating the implementation of these measures by the NTRCs and monitoring developments in the market closely and will initiate further coordinated measures should the need arise. Ladies and gentlemen, Talking about coordination and cooperation, I would like to pick up a paragraph from the Bali Declaration 2001 which is very relevant to this gathering. The fifth agreement states: "while the initiative has been taken by the three major rubber producing countries, the Ministers welcome support and collaboration from other members of the ANRPC in the interest of all rubber producers. The Ministers will consult members of ANRPC on their participation in this cooperation after it is operational." I recalled the 13th Meeting of the ANRPC Executive Committee in I would like to conclude here by quoting from the Opening Address, at that Special Session of the ANRPC Assembly at Ministerial Level on 30 April Ladies and gentlemen, we look forward to more active cooperation, collaboration and participation among all natural rubber producing countries. Thank you.
28 November 2008, 00:54 AM,
IRCo
, Bangkok |