The Rubber Authority of Thailand (RAOT) has joined five rubber traders to set up a 1.2-billion-baht fund to invest in paper rubber traded on the Thailand Futures Exchange (TFEX), aiming to boost anaemic volume in rubber futures.
The fund was set up earlier this month, said RAOT governor Titus Suksaard.
"We cannot control demand, but we can control supply because we are a leading exporter, so the government and the RAOT are working together to increase local consumption of rubber with the aim of increasing [supply by] 40-50% from 10% in the future, so we can increase the chance of setting the futures price direction," Mr Titus said.
Thailand is the leading natural rubber exporter, shipping 90% of the country's production.
The fund has enough to buy 200,000 tonnes of natural rubber or 5% of the total output, while the government aims to spend 14 billion baht to buy rubber for state agencies' usage.
Increasing the demand for RSS3 futures contract on the TFEX is essential to manage the price direction of this instrument, Mr Titus said, adding that local demand of physical natural rubber is expected to increase after rubber manufacturers shift their production base to Thailand in order to supply the Eastern Economic Corridor.
Rubber futures are determined by TOCOM-Japan and SICOM-Singapore, the most active rubber future traders.
Thai rubber exporters and growers have until now been at the mercy of these more active markets.
"For TFEX trading, we cannot say how much trading contracts will increase, but it will become more attractive and attract retail and foreign investors to participate in the future," Mr Titus said.
RAOT will keep prices of natural price at 60 baht per kilogramme, a higher level than in neighbouring Malaysia and Indonesia, to help local rubber growers.
Von Bundit Co managing director Pongsak Kerdvongbundit said the inability to trade RSS3D in US dollars on the TFEX is an obstacle for foreign investors, who have to take foreign exchange risks.
"Rubber is a global product," Mr Pongsak said. "The TFEX will only be competitive with other markets if we can offer the option to trade in other currencies, and to increase our trading efficiency."
He voiced optimism that RSS3D trading volumes on the TFEX will increase with the fund's formation and attract more trading in future.
The TFEX should also allow block trading for RSS3D, Mr Pongsak said.
RSS3D has been active since May after the TFEX appointed Von Bundit and Ausiris Futures Co as the product's market makers, said Rinjai Chakornpipat, managing director of the TFEX.
Trading volumes of RSS3D have increased to about 100 contracts per day from a handful of contracts after the appointments.
Trading remains slim, however, and the TFEX will then appoint additional market makers and continue to stage local road shows in rubber-producing areas.
In the first seven months of the year, TFEX had organised roadshows in Rayong, Bung Kan, Ubon Ratchathani, Nakhon Sri Thammarat and Hat Yai.
"Market makers and the fund will increase the liquidity of these instruments moving forward," Ms Rinjai said.