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Thailand to Use Buoyant Rubber Stocks to Build Roads

Rubber's bear market is poised to deepen as the global supply glut stretches into a fourth year and stockpiles in Thailand swell

Rubber’s bear market is poised to deepen as the global supply glut stretches into a fourth year and stockpiles in Thailand swell

BANGKOK  – Thailand’s ruling Junta have come up a new way to deal with the country’s bulging stockpile of natural rubber: pave the roads with it.

Buoyant rubber stocks, inherited by Thailand’s military junta when they took power in May, are the result of pork barrel politics that cost the state billions of dollars a year and drew criticism from the International Monetary Fund as well as anti-government protesters.

Government has formulated a strategy for use of natural rubber in roads as recommended by experts

The Government has formulated a strategy for use of natural rubber in roads as recommended by experts

Now, in an attempt to whittle back stockpiles while burnishing the reputation of the military as a force for good, hundreds of kilometers of road will be repaved with rubberized asphalt, as part of wide-ranging $75bn construction plan approved this week.

Adding rubber to asphalt produces a road surface tougher and more durable than plain asphalt, but comes at a higher cost.

Previous governments subsidized prices of rubber and rice in order to boost rural incomes and so help maintain political support in the countryside. The unintended effects of the scheme were to promote higher rubber production across the region and to support already high prices.

As the Chinese economy has slowed, demand has failed to keep up causing a dramatic drop in global prices. Natural rubber, which trades in Tokyo, has fallen more than 30 per cent since December, although improving US economic data have given the market a recent bounce.

The previous administration announced in May plans to offload some of its 220,000 tonnes of rubber, more than 1.5 per cent of annual global production. However, analysts say that lobbying from farmers has delayed such a sell down, prompting the government to look to new and creative ways to boost domestic demand instead.

As well as through construction projects that can use some of the rubber mountain, one proposal is to cut down some existing rubber trees before the end of their natural life-cycle – akin to an arboreal “cash-for-clunkers” scheme.

However, rubber analysts are doubtful that the Thai government will have much luck in reversing the current price trend, especially as new production comes online in Vietnam, Indonesia and other neighboring countries.

“The stockpile is quite large and it is unlikely that this project will deplete it all,” said Prachaya Jumpasut, managing director at The Rubber Economist, a consultancy. “To us the problem will not be solved by just using a part of the stockpile in Thailand. Global demand has to pick up and supply from other countries has to slow down as well.”

And though Thai roads may be repaved with good intentions, there is another snag in the plan: Thailand has the wrong kind of rubber. Michael Coleman, managing director at RCMA Asset Management, says that the government stockpile of dry rubber is “absolutely useless” for road building.

“It’s a nice sound bite, but it’s impractical. The only thing that shifts large amounts of rubber is truck and bus tires,” says Mr Coleman. “There’s not much that can be done in the short term.” – By Josh Noble

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