09/10/2009 (Jakarta Globe), Kuala Nerang, Malaysia - Malaysia, once the world’s largest rubber producer, risks becoming a net importer within a few years as trees age and farmers shift to more profitable palm oil.

As the recovering global economy brings a spurt in demand for natural rubber, Malaysia’s imports could rise 40 percent this year, helping drive a spiral that has seen the cost of rubber in top producer Thailand surge 90 percent since December.

Over the same period palm oil has climbed 38 percent in a rally dampened by rising stockpiles, but palm yields are still sufficiently above rubber yields to more than make up for a price gap of around $1,800 a metric ton.

Malaysian rubber planters say they simply do not earn enough to survive and many are shifting to more profitable palm oil.

“The factory near my land has been mixing in more foreign rubber and selling it as local rubber because we have little to offer,” said Zaini Hanafi, 56, the owner of a two-hectare rubber plantation in the northeastern Malaysian state of Kedah.

One of the 250,000 small farmers who account for 94 percent of the Southeast Asian country’s rubber output, Hanafi estimated his plantation was likely to bring in between 6,000 and 8,000 ringgit ($1,734 to $2,312) this year to support a family of five.

By contrast, replanting his land in the rubber district of Kuala Nerang with oil palm would bring in as much as 40,000 ringgit, trade estimates show.

“I don’t blame the factory, but we struggle,” Hanafi said.

“There is very little access to better rubber clones because it’s very expensive and government schemes are not enough.”

Malaysia’s SMR 20 rubber, one of the top-quality grades used to make tires, is now often mixed with lower quality but cheaper West African blends and industry analysts say Malaysia’s imports may rise 40 percent to 700,000 metric tons this year and next.

Domestic output is now a little above one million metric tons and as demand improves amid tight supplies, the benchmark Toyko futures contract has risen more than 85 percent since December.

Palm oil futures have climbed 39 percent in the same period. In terms of yields, however, land under palm yields 10 metric tons per hectare per year, while rubber yields 1.4 metric tons.

“Malaysia is becoming more of a buyer than a seller of rubber,” said a local trader who declined to be identified. He said imports were a sensitive political issue.

“In the past, half a million metric tons of imports was the norm, but now it is going up and up. A figure of 700,000 metric tons is very feasible.” Malaysia last week imposed a rubber levy of 4 Malaysian cents a kg in a bid to cut imports and will use the funds to boost domestic output, although the industry says far more drastic action will be needed.

“There will only be change when something drastic happens, such as rubber disappearing from Malaysia. By then, it would be too late,” said Aliasak Ambia, president of the National Association of Smallholders.

While Malaysian output languishes, Thailand, the world’s top rubber producer, has boosted government incentives and planted aggressively. That has seen yields rise to 1.8 metric tons per hectare compared with 1.4 metric tons for Malaysia.

The Thailand government estimates production could rise 10 percent by 2013 from three million metric tons this year.

“There is no risk to Thailand rubber farming as the rubber farmers’ age is quite low, at 30 to 40 years, compared with Malaysia’s older farmers,” said a rubber trader in the southern Thailand city of Hat Yai. “They are keen to sell and have lots of rubber.”

Toyko rubber futures trading has seen greater activity with Thailand dealers taking long positions in the market to hedge their contracts with Malaysian buyers.

The shortage of Malaysian rubber could change buying patterns at the world’s biggest tire makers, France’s Michelin and Bridgestone of Jpaan.

Malaysian rubber “may be one of the best grades used for the manufacture of tires by multinational tire companies but there seems to be a shift to other Thailand and Indonesian grades,” said a dealer in Singapore. Malaysia may be underinvesting at a time of a fundamental demand shift as oil prices rise again, making synthetics less competitive.

Another large source of demand for rubber is Malaysia’s latex glove industry, which supplies 65 percent of the world’s natural rubber gloves.

The industry now sources 60 percent of its raw material from overseas and that trend looks set to gain momentum.

“We are upgrading production capabilities at our latex concentrate factory,” said Lim Cheong Guan, director of Top Glove, which says it is the world’s largest rubber glove maker.

“Thailand is a growth center for us. I don’t discount adding more factories in Thailand,” said Lim, whose company has four latex plants in southern Thailand, a key rubber growing region.