1.

1 BACKGROUND OF STUDY

This study is conducted based on trend of natural rubber (NR) price in Kuala

Lumpur rubber market from year 2002 until 2017. On December 2017, the trend of rubber

price in rubber market continued to be mixed. The market was on a firmer note, reacted

positively to the announcement by International Tripartite Rubber Council (ITRC) on 30

November to address declining NR prices by curbing natural rubber (NR) exports through the

implementation of the 5th Agreed Export Tonnage Scheme (AETS). Besides, a huge fire

which engulfed China’s Qingdao warehouse destroyed about 36,000 tonnes of natural rubber

gave some support to the market. At the same time, the decision was made by the

Organization of the Petroleum Exporting Countries (OPEC) and Russia on 30 November to

extend production cuts until the end of 2018 also boosted the market sentiment.

However, the firmer sentiment was short-lived and the market was dragged down following

volatile regional rubber futures markets due to excessive speculation, profit taking activities

and a weaker US dollar. The absence of significant consumer interest due to ample supplies

of NR also dampened the market sentiment. Generally, market conditions in December were

mostly influenced by volatile regional rubber futures markets, rising China’s NR inventories,

ample supplies of NR, performance of oil prices and currencies movements. In comparison

with the closing price on November 2017, the price of SMR 20 increase by RM 0.19 per kg

or 3.4%, near to RM 5.81 per kg while latex concentrate close at RM 4.62 per kg, down by

RM 0.16 per kg or 3.3%. The price movements of selected grades of rubber are shown in

Figure 1.
 *Source : Malaysian Rubber Board,MRB Seller’s Offer Price

1.2 PROBLEM STATEMENT

Rubber price has achieved its peak on 2011 based on figure 1, the following year the

market was dragged down and the rubber price trend shows a declining in its price from year

to year. This has create anxiety and worries in the rubber industry in Malaysia especially

among the smallholders. Market sentiment has influenced natural rubber (NR) price to fall

further, in which would cause smallholders to stop tapping because of the earning from these

commodity would not enough to accommodate cost of living. In addition, the price almost

touch the cost of production and cause the producers stop the trading activity, awaiting the

price to be positive. If this continue, it will eventually affect natural rubber production in

Malaysia and became economy catastrophic. In the middle of uncertainty of rubber markets,

there is a need to identify and evaluate the factors influence the price of natural rubber in

Malaysia, so that government can implement several strategy to make sure rubber price

remain competitive, rubber tapper continue their job and the trading activities will not cease

their operation.