Rubber turns pricey on surging demand, scarce supply

By Lewa Pardomuan

SINGAPORE (Reuters) - With buyers the world over scouring for natural rubber and producing countries struggling to increase supplies, industry will soon feel the bite of spiralling prices.

Though the market has been very much in balance in 2007, demand could exceed supply as early as next year as several factors conspire to curb output growth in the main producing countries of Thailand, Indonesia and Malaysia.

These include delays in planting caused by erratic weather, limits in cultivable land, labour supply constraints, higher wage costs and religious insurgency.

"There is no single piece of evidence to foresee a decline in the price. All factors are favourable for an increase in price," said Jom Jacob, senior economist of the Association of Natural Rubber Producing Countries.

"There are well-defined limits for natural rubber supply to increase at least until 2012. So, the tight supply situation is likely to continue," he said.

International prices have risen four-fold since hitting 30-year lows in 2001, when there was a supply glut.

Some analysts say they expect rubber to rise around 18 percent to $3 a kg next year. Thai RSS3 grade, often used as the benchmark for physical prices, stood at $2.55 a kg on Friday.

"It's possible the price will reach $3, although I would prefer to refrain from mentioning any specific number. Strong demand, mainly from China, is one of the factors that will push up the price," said a Tokyo-based analyst.