IRSG says prices of rubber set to increase next year.

Natural rubber prices will continue to rise next year, even though output from the world's leading producing countries is expected to increase, according to an expert from the London, U.K.-based International Rubber Study Group (IRSG).

In the domestic market, the price of natural rubber at the central market in Hat Yai, Thailand, rose from 45 baht per kilogram at the beginning of the year to a record high of more than 70 baht in July. It has since declined and now is trading at about 59-60 baht.

Prachaya Jumpasut, head of economics and statistics at the IRSG, a keynote speaker at the Asian Rubber Conference 2005 in Bangkok, Thailand, declined to give a specific price forecast for natural rubber, but said it likely would trade above 50 baht per kilogram next year.

The major factors supporting prices next year will likely be the same ones that pushed them higher this year, including soaring oil prices and increased demand from China and India.

The IRSG has forecast that natural rubber production in 2006 will increase by 3.3% from 8.89 million metric tons in 2005 to 9.19 million metric tons.

Thailand, the world's largest producer, is projected to produce 3.11 million metric tons next year, up 4.2% year-on-year, while output from the other two leaders, Indonesia and Malaysia, is forecast to increase 1.7% and 5.2%, respectively, to 2.28 million and 1.23 million metric tons.

The rise in rubber prices this year has prompted the three countries to boost their output. Even Malaysia, which had been cutting output in recent years, is reviewing its production plans for 2006.

This year, Thailand is expected to produce 1.99 million metric tons of rubber, up by only 1% from the year before, while production in Malaysia is expected to increase just 0.7% year-on-year.

The IRSG had slightly revised downward its projected increase in rubber output from Thailand's, partly because of the unrest in the south.

In terms of consumption, the organization has forecast that demand will continue to rise until 2009. Total world rubber consumption, including natural and synthetic products, is expected to increase from 20.03 million metric tons in 2004 to 23.84 million metric tons in the next four years, or an annual growth rate of 3.5%.

"This means that demand from China, which has pushed global growth 2-3% higher in recent years, is expected to continue to expand for at least five more years, the longest span since the early 1970s," Dr. Jumpasut said in a paper on the rubber market.

He expressed concern over volatile rubber prices and suggested that the Thai government introduce price insurance schemes to help planters cope with unsettling conditions. Such a measure could relieve supply shortages, as well. He said encouraging small landholders to continue to grow rubber plants is another solution for relieving supply shortages.