They said further price declines are anticipated in both the cash and futures markets. The Japan Rubber Manufacturers' Association recently forecast the country's rubber consumption in 1998 to be 1.44 million metric tons, down 2.6 per cent from 1.48 million tonnes in 1997.

According to the JRMA, rubber demand from Japan's tyre industry will slip 2.6per cent to 1.10 million tons in 1998, while industrial rubber consumption will fall 2.7 per cent to 280,000 tonnes. Tyre production accounts for almost 80 per cent of Japan's natural rubber consumption.

According to the Japan Automobile Tire Manufacturers' Association, tyredemand in 1998 will decrease by 2.7 per cent to 1.08 tons on year."We regard the forecast (by Jatma) as realistic," said Tom Ogata, manager of the export division at Ohtsu Tyre & Rubber Co. Ltd. (J.OTR or 5106), an Osaka-based Japanese tyre manufacturer.

"Japan's economy is very slow this year. Auto production is also very low," said Moriaki Ohashi, general manager of JRMA's general affairs department, explaining the reasons for these pessimistic forecasts. There is a close correlation between economic growth and demand for industrial rubber products.

Jatma forecasts Japan's gross domestic product to grow 0.8per cent in 1998, down from 1.0 per cent growth in 1997. The official government GDP growth forecast for the fiscal year ended March 31, 1998, is 0.1per cent. Japan's production of cars, trucks and buses fell 10.6 per cent in March from a year earlier to 976,737 units, while the country's 11 automakers plan to make overall cuts of 11per cent from April. According to Jatma's forecast, Japan's carproduction this year will fall 2.1per cent to 10.7 million units.

While domestic sales will see a slight drop of 0.2 per cent, export sales are expected to go down by 4.8 per cent, said Jatma. Although the recovery of the European economy and the weaker yen may stimulate exports, negative factors such as the volatile currencies in south-east Asia still add to the uncertainties, according to Jatma.

The US dollar was quoted at Y136.75 midday Monday in Asia, compared to Y115.33 a year ago. "We have been facing a tough situation in Southeast Asia due to the economic crisis," Ogata said. "We are trying to maintain our market in Southeast Asia, but I think in the first half of this year there will be a 10per cent-15per cent decrease (of export sales there)."

South-east Asia is the third-largest export market for Ohtsu Tyre & Rubber, after the US and Europe, according to Ogata. Malaysia's motor vehicle sales are forecast to show a 60 per cent fall in 1998, while sales in the Philippines are seen falling 20per cent.

The declining Japanese buying interest and ongoing economic crisis in the region point to further declines for the already weak rubber market, rubber traders and brokers said. Offers for Thailand's benchmark grade of rubber, Ribbed Smoked Sheet 3, for September shipment are seen at 80.00 US cents.

Offers for Thailand's benchmark grade of rubber, ribbed smoked sheet 3, for September shipment are seen at 80.00 US cents a kilogram Monday, down sharply from 117.00-118.00 cents at the same time last year.

Demand from Japanese consumers is likely to decrease by 20%-30% this year, said a rubber exporter based in Krabi, southern Thailand, referring to his own business.

"Last year, bids from Japan came at least three days a week," said a Bangkok-based trader. "But this year, there has been no bidding for two months."

The poor market fundamentals are also aggravated by the large stockpiles held by Thailand and Japan, traders said. After a sale of 30,000 tons to a Singapore rubber dealer last week,Thailand's current rubber stockpile is still estimated at 60,000 tons, while Japan's domestic natural rubber stocks as of May 10 totaled 42,727 tons, up 18% from 36,300 tons a year ago.

These stocks, along with new supply as the annual wintering period draws to a close, will put heavy pressure on the market, traders said. The wintering period, when latex yields fall, runs from February through May-June.

"I am not able to give any forecast on future price declines. I dare not look too far, because the fundamentals are so bad," said a Kuala Lumpur-based managing director with a rubber trading company. Rubber futures brokers on the Tokyo Commodity Exchange also agreed that market sentiment will be bearish in the long run. The Tocom benchmark October contract closed at Y113.7 a kilogram Friday, down from Y133.5 a year ago.

Although the yen's value against the US dollar exerts some influence on Tocom rubber prices, the impact of its recent depreciation against the dollar has been limited, brokers in Japansaid.

Despite the gloomy picture, Japanese tire manufacturers are still trying to adopt all sorts of aggressive strategies to boost exports, including exploring new markets where they don't produce tyres locally, such as the Middle East and West Asia, according to Kenichi Kitawaki, public relations manager at Japan's Bridgestone Corp.

To stimulate more overseas consumer interest, Japan's tyre producers are also ready to provide new designs and offer cheaper prices, said Ogata. Price reductions will range from 5 per cent to 15 per cent for tyres produced by Ohtsu Tire & Rubber, he added.

But such price adjustments may yet prove insufficient to spark fresh buying interest in the weak Southeast Asian markets.

"Asian people do not have high safety concerns, not like Europeans," said the Kuala Lumpur-based managing director. "They will make do with old tyres." Referring specifically to Malaysia, he said that given the bad economic climate, most people prefer to buy domestic tyres or locally producedforeign brands which cost $90-$100 each.

Michelin tyres cost $200-$300 each in Malaysia and Japan