NR consumption stagnant.

For natural rubber, 1993 lacked luster. Prices remained very depressed during most of the year and reached their lowest level during the month of October, before recovering slightly in the course of the last few weeks of 1993.

The main production and consumption figures for the past year only show a very slight variation compared to those of 1992. The world production of natural rubber increased to 5,575,000 metric tons compared to 5,550,000 mt in 1992, and consumption reached 5,450,000 mt in 1993 against 5,435,000 mt during the previous year.

Therefore, as during the preceding years, production exceeded consumption by slightly more than 100,000 mt. This stock as we shall see later, had to be absorbed either by various governments or by the International Rubber Organization (INRO) through its buffer stock.

INRO was paralyzed during most of 1993, the result of a disagreement between producing and consuming countries as to the mechanisms of revision of the intervention levels in a downward direction. This revision, which was meant to be automatic because of the persistence of the reference prices at low levels, was questioned by most of the producing countries. This led to a total freeze for more than six months of buffer stock operations. The organization could not intervene to support prices. As a result, the natural rubber prices dipped to new lows during 1993.

Finally, a meeting of the INRO council in November ended in a compromise, giving a temporary solution. The producers obtained from the consumers, against a reduction of 5% in the level of the reference price, the commitment to renegotiate during 1994 the basis of a new agreement while the current INRA 2, which should have expired on December 31, 1993, will be extended for one more year.

After this meeting, the buffer stock manager who had previously made fresh calls for 150 million Malaysian ringitts, was able to intervene in the market more effectively. He succeeded in raising prices above the intervention level. After these purchases, the INRO stocks amounted to 215,000 mt.

Several other factors contributed to the increase in prices over the last few weeks of the year: the weakness of the Malaysian currency, the ringitt, as well as heavy rainfalls which affected producing areas in Southeast Asia.

Production in Thailand failed to show the same increase in figures as the previous years. A more detailed analysis of Thai statistics shows that dry natural rubber export figures dropped by about 6% compared to 1992, while exports of liquid latex doubled in volume.

Moreover, the Thai Government discretely intervened in the market during the course of the year to buy back substantial quantities of smoked sheets. This was in order to stop further deterioration of prices and quiet the dissatisfied small-holders. Some of these stocks were sold back later on, but it is estimated that some 50,000 tons are still being held in Thailand.

Production in Malaysia showed a downfall once again. Internal consumption is still on the increase due to a high demand from the local latex industry. Rubber exports, on the other hand, dropped by nearly 10% in comparison with 1992.

The increase in production of China and India is due to a high internal demand.

The other main producing countries in Africa and Asia have seen their production remain stagnant or decrease due to either the weakness of prices or to the poor economical situation of the country (Nigeria, Zaire).

World consumption has remained stable but the evolution varies considerably depending on each country.

Demand in the United States accelerated during the second half of the year, with the decrease in interest rates. Car sales increased by 7% compared to 1992.

Japanese consumption, on the other hand, saw an opposite trend. The sales of the two main automobile manufacturers, Toyota and Nissan, dropped by 7.4% and 8.4%, respectively, compared to 1992, and their exports by 9.4% and 27.4%. Though this reduction of exports was partially compensated by an increase of their production abroad (16.2% and 16.5%, respectively), such a trend benefited more non-Japanese tire manufacturers,

European demand dropped overall during 1993. Sales of new cars in Western Europe went down by approximately 14%, Germany and Italy being the two main countries affected. France also suffered, although the decline seems to have stopped and demand is picking up as result of the reduction in interest rates.

Great Britain, unlike other countries, saw a rise in internal demand even if export sales suffered. It is the only in Europe which actually registered a modest increase in natural rubber consumption during 1993.

More than ever, natural rubber is under pressure from synthetic rubber as the price is also at its lowest due to a weak demand, the drop in oil prices and cheap exports from the CEI.

What can be expected of 1994? The relatively firm prices over the last few weeks must not allow us to forget that if the Thai government or INRO had not intervened to remove excess production, prices would have most probably remained at their lowest level historically for 12 years.

New, large Southeast Asian producing countries are emerging such as Vietnam and Cambodia, where production costs are far lower and where it is of national priority to give work to the low income groups of the population. In such an environment, countries like Malaysia will have difficulty maintaining their share of the market under economical conditions suitable to them. We cannot forget that the buffer stock has 215,000 t which it will have to get rid of if no agreement is reached in the establishment of INRA 3.

What are the chances of reaching such an agreement? The discussions which will apparently begin in Geneva in April will be difficult.

The producers' demands are already known. They wish an upward revision of the reference price and a narrowing of the intervention price bands.

It is likely that most of the consuming countries will be against such demands, as this could lead to the gearing of a price support system, while the actual target of this agreement, as it was originally defined, is to stabilize natural rubber prices.

Producers will also try to obtain a suppression of the clause which mentions that the agreement is the sole price stabilization tool. It would then give total freedom to their association (ANRPC) or their governments to decide upon measures which could be unilateral or independent from this agreement.

It is most probable that the governments of consuming countries will oppose such a move as they would see it as a violation of the basic agreement.

As stated, all is far from being agreed and negotiations are likely to be very slow. Yet, producing countries are pressed for time. They do not have much room to maneuver and all will depend on the desire of consuming countries to reach a new agreement in a world, which economically, will remain difficult.