Profit margins slashed as rubber price nosedives on world markets
PLUMMETING prices are threatening Cambodia's once-booming rubber sector, with exporters reporting tight margins and declining international demand.
The General Directorate of Rubber Plantations said Wednesday that prices had dropped to US$1,378 per tonne in February this year, from highs of $2,681 per tonne last year - a drop of nearly 50 percent.
Ly Phalla, director general, told the Post Wednesday that he expects prices to stay low because of falling tyre demand.
"I think the rubber price will not recover any time soon because the automobile industry has reduced production," he said.
He said that he does not expect a return to last year's soaring prices, which saw rubber hit a 54-year high.
"I am very worried about the decline in rubber prices and the drop in purchase orders," he said, but added that even with falling prices, farmers still favoured rubber over growing corn and cassava.
"The government still has a policy of encouraging rubber plantations because our rubber production is still small," he said.
"I think rubber farmers are willing to plant more trees if the price stays between $1,000 to $1,500 per tonne."
From now until 2015, the government will expand rubber plantation land to about 150,000 hectares from the current 100,000 hectares, Ly Phalla said.
In 2008, Cambodia exported over 40,000 tones of dry rubber, and this year exports are expected to reach 50,000 tonnes, and Ly Phalla said he hoped Cambodia would eventually produce over 100,000 tonnes.
The price of rubber will go up next year ... there are no other raw materials.
Cambodia's rubber harvests are set to double by 2011, as recently planted trees mature. More than 30,000 Cambodians are employed in the rubber sector.
Men Siphan, the deputy director general in charge of rubber plantations at the Ministry of Agriculture, said that rubber prices are still high enough for local farmers to earn a profit.
"Rubber was $450 per tonne in 1998, but farmers were still earning a profit even then," he said. "I think the decline will not influence agricultural development in the country, so rubber development will not be a problem."
He added that although there has been a decline in purchase orders and rubber prices, it has not seriously affected Cambodia because it was comparable to a decline in oil prices and other raw materials.
"I believe the price of rubber will go up next year because there are no other raw materials to replace rubber," Men Siphan said.
Rubber prices got a boost this week when the Chinese government announced it would buy 10,000 tonnes of the commodity to support prices.
Chan Sophal, president of the Cambodia Economic Association, said the decline in rubber prices will hurt rural incomes but that farmers would be able to profit at current prices.
"I think that the decline in rubber prices won't kill rubber farmers," said Chan Sophal.
ADDITIONAL REPORTING BY GEORGE MCLEOD