Halcyon Agri to hike rubber prices, may halt SICOM delivery

By A. Ananthalakshmi and Manolo Serapio Jr

SINGAPORE, April 17 (Reuters) - Major rubber producer Halcyon Agri Corp Ltd will boost prices sharply for long-term contracts and may end delivery to the Singapore SICOM rubber exchange, according to a letter from Halcyon.

The step by Halcyon, which makes around 7 percent of global natural rubber output, highlights frustration among big rubber producers in Asia with futures prices that are wallowing at their lowest since 2009. The falls come as a chronic supply glut coincides with weak demand from top consumer China.

"The futures market prices for natural rubber remain at depressed levels, and indeed appear to be under further downward pressure," according to a letter sent by Halcyon to the Indonesian Rubber Association (GAPKINDO) and seen by Reuters.

From the second half of 2015, Halcyon said its long-term contracts with clients will stipulate that its rubber may no longer be delivered to SICOM, effectively giving Halcyon a freer rein on pricing.

"We will not be renewing any SICOM-average long-term contracts with dealers. Such contracts shall be reserved exclusively for consumers," Halcyon said in the letter.

The company said it will "substantially increase the premiums" relative to the SICOM price, adding more measures were likely if the market situation does not improve significantly.

The SICOM price, a key benchmark for rubber pricing in Asia, fell to as low as 135 U.S. cents per kilogram this year, the weakest since March 2009.

Officials at Halcyon Agri's office in Singapore declined to comment and officials at Singapore Exchange, which owns SICOM, did not immediately respond to requests for comment.

GAPKINDO confirmed it had received the letter.

"Most of our smallholders are crying because the price is too low," Asril Sutan Amir, vice chairman of GAPKINDO, said by telephone.

The price of tyre-grade rubber should be around $1.80 to $2 per kg, he said, suggesting that major producers should meet and discuss the outlook for the industry.

GAPKINDO led a move in September among Asian rubber producers not to sell the commodity below $1.50 per kg in a bid to shore up prices. The move only lifted prices temporarily.

Halcyon runs 12 natural rubber processing facilities in Indonesia and two in Malaysia, with a combined annual capacity of 748,000 tonnes, according to its website.

About 500,000 tonnes of Halcyon's output is currently eligible for delivery to SICOM, a source familiar with the matter said.

The company could lift premiums to consumers by three to four times or up to $80 a tonne over the SICOM price, the source said. (Editing by Ed Davies)