By Lewa Pardomuan and Ho Binh Minh
SINGAPORE/HANOI (Reuters) - After years of massive expansion, tearing up forests and swallowing land in neighboring countries to create rubber plantations, Vietnam is reaping what it sowed: a swelling of output that has made it the third-largest rubber producer.
Later this year rubber farmers will tap maturing trees from new plantations, but with global oversupply and limited storage capacity, Vietnam's burgeoning output could spark a price war in a market already at multi-year lows.
With little prospect of government intervention to support prices, Vietnam's rubber farmers will have little choice but to sell, shrugging off industry pleas to hold back and making other leading suppliers, Thailand, Indonesia and Malaysia, nervous.
"Of course we are worried," said Edy Irwansyah, executive secretary of the North Sumatran branch of the Indonesian Rubber Association, which groups exporters in the world's second-largest producer after Thailand. "If supply and demand don't match, then it will definitely weigh on prices."
In 2001, a rebound in rubber prices from 30-year lows of sub-50 cents a ton inspired Vietnam to diversify key agricultural crops and offer loans at low interest rates to farmers to plant rubber trees.
Vietnam's state-run rubber companies also opened plantations in neighboring Laos and Cambodia. The Vietnam Rubber Group, the top exporter, reported its rubber area last year rose 9 percent to 392,000 hectares (968,000 acres), of which 100,000 hectares were in Laos and Cambodia.
In just seven years, the aggressive state-sponsored rubber campaign has seen output rise by 60 percent from 2007's 606,000 tons, according to data from the Association of Natural Rubber Producing Countries (ANRPC), in which Vietnam is a member.
This year, output is forecast to hit nearly 1 million tons, said the International Rubber Study Group, which includes rubber producing and consuming countries and forecasts supply-demand outlook.
And Vietnam's output could rise a further 50 percent near the end of the decade.
"In the next five years (Vietnam) can move up to 1.5 million tons. Trees are already there waiting to mature. You can't ask farmers not to tap once they become mature," said Stephen Evans, secretary-general of the International Rubber Study Group.
Traders well remember 2001 when Vietnam was accused of flooding the coffee market sending global prices to 30-year lows. Coffee farmers now curb sales when prices slip below certain levels, but rubber growers may not have the financial means to hold back.
"I wonder if you could see this kind of discipline in the rubber market. I doubt it. It's still a fairly new industry for them and they still haven't as much money," said Macquarie analyst Kona Haque in London.
Dealers say there could be price war among the main growers as production rises, with farmers possibly scrambling to cash in before any further fall in prices due to oversupply.
"They need cash to feed the family, and they can't afford to hold back because they are smallholders," said an exporter in Indonesia.
Rubber farmer Nguyen Bao in Binh Duong province, just outside Ho Chi Minh City, has no intention of holding back his rubber, citing farm revenues halving in the last two years to 100 million to 120 million dong ($4,700-$5,700) per hectare.
"We do not have alternatives, no other business, so we will have to stick to rubber. Yield has fallen, but I will not sell my rubber land," said Bao, who has farmed around 3 hectares since the 1980s.
Thailand, Indonesia and Malaysia met in February and recommended they should not sell rubber at the current prices. It has asked Vietnam to sell less this year.
But efforts to revive prices could hit a snag without participation from Vietnam, which is not a member of the International Rubber Consortium. The consortium includes major rubber producers such as Thailand, Indonesia and Malaysia and aims to maintain supply-demand balance.
"We have sent a letter to Vietnam Rubber Association, and they replied, supporting our effort not to sell rubber at low prices," said Irwansyah at the Indonesian rubber exporters group. "But whether Vietnam is actually doing it, we need to check their sales volumes."
Tran Ngoc Thuan, chairman of the Vietnam Rubber Association, said the association had proposed that members and domestic entrepreneurs cut natural rubber production in 2014 and avoid selling at levels lower than international prices.
State media reported last month that many farmers were cutting down rubber trees in the central highland province of Dak Nong due to slow sales and a drop in prices.
PRICES UNDER PRESSURE
Although global demand for natural rubber is forecast to grow by 4 percent in 2014, the market will see a surplus of 373,000 tons this year, a fourth year of oversupply, according to Macquarie.
Worries over economic growth and demand from China, which buys 60 percent of Vietnam's rubber, have sent tire grade prices on the Singapore Commodity Exchange to their weakest since mid-2009, below $2 a kg.
The tire-making industry makes up about 60 percent of global rubber consumption. Rubber is also used to make gloves, condoms and products in transport, construction, health and mining.
The global rubber price benchmark on the Tokyo Commodity Exchange is also languishing near 18-month lows because of similar fears.
The ANRPC expects Vietnam's exports to fall slightly in 2014 to 1 million tons from 1.08 million tons in 2013, and while it said domestic consumption will rise, Vietnam's closing stocks may hit a four-year high at 54,200 tons this year.
And there is no sign production will ease.
Top exporter the Ho Chi Minh City-based Vietnam Rubber Group said in a March statement it plans to expand rubber planting by nearly 10 percent to 430,000 hectares (1.06 million acres) by 2015, with at least 100,000 hectares in Laos and Cambodia.
(Additional reporting by Rajendra Jadhav in Mumbai; Editing by Michael Perry and Ed Davies)