Vietnam rubber set for 1st drop in 6 yrs

Rubber shipments from Vietnam are poised to decline for the first time in six years as demand growth slows in China, according to the deputy trade minister of the world’s third-biggest producer. Only Thailand and Indonesia produce more.

Exports will probably drop 7% to 1 million metric tonnes this year, Tran Tuan Anh said in an interview in Hanoi on July 29. That would be the first decrease since 2008, according to the General Statistics Office. The country will seek to diversify its export markets to lower exposure to China, the world's biggest consumer, and boost domestic use, Mr Anh said.

Futures slumped 61% from a record in 2011 amid a global surplus that will probably extend through 2016, according to the Rubber Economist, a London-based advisory company. The International Monetary Fund last week lowered its world growth estimate for this year as expansions weakened from China to the U.S. and conflicts increased the risk of a surge in oil prices. China is also producing more natural rubber.

"As the world economy is slow to recover, demand from Vietnam's big buyers is seeing limited growth," said Mr Anh. "Less usage of natural rubber by Chinese factories as well as rising output in China itself is reducing the need to import."

Futures, which reached an all-time high of 535.7 yen in February 2011 on the Tokyo Commodity Exchange, have plunged 24% this year to 207.1 yen a kilogram ($2,012 a tonne).

The world economy will advance 3.4% in 2014, the IMF said in July, less than its 3.6% prediction in April. China will grow 7.4% this year, the weakest pace since 1990, based on the median estimate in a Bloomberg survey.

Global production will outpace demand by 514,000 tonnes in 2014, 328,000 tonnes in 2015 and 202,000 tonnes in 2016, Prachaya Jumpasut, managing director at the Rubber Economist, said in June. Output in Vietnam will rise 2.2% to 970,000 tonnes this year, says the Association of Natural Rubber Producing Countries, or ANRPC.

Farmers in Vietnam are making money even after prices fell. In areas where yields are 2 tonnes a hectare, growers with 3 hectares make a profit of as much as 30 million dong ($1,412) a year, or a margin of 15%, says the Vietnam Rubber Association, which represents producers and traders.

China Tensions

Output of natural rubber in China is set to rise 6.3% to 910,000 tonnes this year, the ANRPC said. Imports may expand 11% to 4.26 million tonnes, slowing from last year's growth rate of 14%, it said in its June report.

Vietnam will seek to reduce dependence on China by promoting exports to countries like India and the Philippines, Mr Anh said. The nation will try to enhance yields and quality and boost local use, he said. China bought 40% of its rubber exports in the first half, according to Vietnam customs data.

Tensions between China and Vietnam increased this year after China set up an oil rig in waters claimed by both countries. The rig has been removed and the tensions have not had a significant impact on trade, Mr Anh said.

Vietnam is considering a move to join the International Tripartite Rubber Council as it acknowledges its importance, Anh said. The group includes Thailand, Indonesia and Malaysia and represents almost 70% of supply.

The country lacks an official body to monitor farmer output plans, Mr Anh said. Most producers are small and take spontaneous decisions, which resulted in the planting area exceeding the government's master plan, he said.

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