KUALA LUMPUR (NewsRise) -- Malaysian Rubber Board forecasts rubber prices to rise slightly next year as demand for tyres pick up in some select major economies such as the U.S. and China, although ample supply is expected to limit any sharp gain.
The benchmark SMR20 grade rubber is likely to trade between 5.00 ringgit and 5.50 ringgit a kilogram in the first six months of 2016, said Malaysian Rubber Board Director-General Mohd Akbar Md Said. SMR20 is currently trading around 4.80 ringgit a kilogram.
The comment comes at a time when rubber prices have remained doggedly weak amid supply glut and lacklustre demand from key markets such as China, the world's top importer of natural rubber.
"You can expect similar supply situation this year and next year," Mohd Akbar added.
Prices of natural rubber have declined more than 25% so far this year, forcing many rubber growers to abandon their plantations as continued operations could result in losses, the Association of Natural Rubber Producing Countries said.
Rubber plantations in Southeast Asia expanded as prices climbed to record high in 2011 before global economic slowdown squeezed demand and brought the decade-long rally to a halt.
Members of the ANRPC-including Malaysia, Thailand, Indonesia, Vietnam, China, India, Sri Lanka, Cambodia and the Philippines--have been grappling with six-year low prices due to oversupply of the commodity, used in everything from medical gloves to tyres.
Global output could fall 0.1% annually this year at 10.94 million tons, ANRPC's forecast showed, helping to trim stockpile at a time of sluggish demand. Up to October this year, rubber production totalled 8.99 million tons.
Demand for rubber from major importers such as China, the U.S. and the European Union could rebound next year, said Suarni Sumormo, deputy director-general of the Malaysian Rubber Board.
"There is indication of economic recovery in the E.U.," he said, noting that 80% of the demand for tyres from Europe is met by imports from China.
China consumes 40% of the world's rubber supply, bulk of it imported from Thailand, Indonesia and Malaysia.
In 2011, the three countries banded together to create the so-called International Tripartite Rubber Council, or ITRC, in a bid to lift prices of rubber. Despite combined efforts - the three countries collectively control more than two-thirds of the world's total rubber output - to cut production, the surplus in supply persisted, limiting price gains.
The ITRC believes that rubber prices at around $4.9 a kilogram would be "ideal" while the current levels are nearly equal to production cost.