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December 14, 2008

Top producers to cut rubber exports by a sixth

The world's top three rubber-producing nations on Saturday stepped up efforts to revive ailing prices, agreeing to cut next year's exports by a sixth and banning more sales until prices rebound by nearly 25 percent, reported Reuters.

Officials hoped the measures -- to be enforced by a quota system monitored by the industry groups of Thailand, Indonesia and Malaysia -- would have an immediate impact on prices, which have tumbled by two-thirds since hitting a 56-year-high in July.

It is the toughest action yet from the International Rubber Consortium (IRCo), whose members produce 70 percent of all natural rubber. A deal in October to trim output by 3 percent and efforts to get farmers to hold back have failed to halt the slide in prices as the outlook for the world economy and auto industry deteriorates.

"We are implementing (it) as early as January, just two weeks from now, so we hope that...the price of rubber will increase," Nurmala Abdul Rahman, deputy secretary general at Malaysia's Ministry of Plantation Industries and Commodities, told reporters after chairing a three-day IRCo meeting in Sukabumi, West Java.

IRCo members said they would cut exports by 915,000 tonnes next year, and that they would not sell rubber at below $1.35 per kilogram. They exported 5.5 million tonnes in 2007, while total production was 7 million tonnes.

The deal will see first-quarter exports cut by 270,000 tonnes, Nurmala said.

"This is to ensure that the natural rubber price remains remunerative to over three million smallholder households and also fair for consumers relative to synthetic rubber price."

But IRCo's members face a daunting task to control supply from small plantation owners, while at the same time industrial demand is falling fast, especially from tyre makers like France's Michelin that consume seven-tenths of their output.

The combination of a global economic slowdown, uncertainty over the fate of the US auto industry now that rescue talks have collapsed, and plunging oil prices that make synthetic rubber more competitive augurs badly for the market.

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