Rubber: Shanghai and TOCOM lowest since 2009

China , Indonesia , Malaysia , Rubber , Thailand Apr 21, 2014 No Comments

RubberThe benchmark rubber contract on the Tokyo Commodity Exchange (TOCOM) for September delivery dropped 8.5 yen, or 4 percent, to settle at 206.4 yen ($2.02) per kg. It fell to an intraday low of 205.1 yen per kg, the lowest since October 7, 2009.

The contract ended the week down 3.4 percent and a fifth straight week of losses. “There was no fresh fundamental news, but bearish sentiment got stronger after investors stepped up selling to cut losses amid worries about slowing demand in China and high inventories,” said Toshitaka Tazawa, an analyst at Fujitomi Co.

A surplus in the global natural-rubber market this year will be 78 percent more than estimated in December as demand growth weakens and production in Thailand surpasses forecasts, according to The Rubber Economist Ltd. The benchmark contract in Tokyo fell for a fifth week as China‘s economy moderated at the weakest pace in six quarters and new-home price increases eased across the country last month amid tighter credit. The commodity used in tyres dropped into a bear market in January and is down 25 per cent this year.

A few cargoes of Indonesian and Malaysian tyre grades were traded this week, dealers said on Wednesday, but prices came under pressure because of uncertainty over demand and slower economic growth in top consumer China. Many Thai sellers stayed away from the market after the Songkran New Year lull, expecting rubber prices to rise from current lows as supply tightens during the ongoing dry wintering season in Indonesia and Malaysia.

The excess is estimated at 652,000 tonnes in 2014, compared with 366,000 tonnes predicted in December, as demand slows and output in the largest grower Thailand surpasses forecasts, according to The Rubber Economist. The London-based industry adviser increased its estimate for world output last year by 3.9% to 12.04 million tonnes from 11.59 million tonnes forecast in December.

“The picture of the global supply-demand has clearly changed as a result of the data revision,” said Prachaya Jumpasut, who’s studied the commodity for more than three decades. “We expect a continued weakness in the rubber sector in most of the major rubber-consuming regions this year.”

Thai rubber free-on-board fell 1.4% to 71.45 baht a kg on Friday, according to the Rubber Research Institute of Thailand. Prices are down 2.1% this week, the most since the period through Feb 7. “There are plenty of people who just can’t sell because the price of raw material latex is still high,” said a dealer in Indonesia‘s main growing island of Sumatra.

“For China, recent data seems to point to a slower, or at best a steady, economic growth,” Prachaya  said. “This and a slow economic recovery in her trading partners let us to believe that the growth of natural-rubber consumption in China to slow down this year.” Demand in the U.S. may “turnaround from a decline to a positive growth,” he said.

Kaname Gokon, general manager of research at broker Okato Shoji, said that though TOCOM oil and precious metal futures were at a deadlock with little change, rubber tended to show clearer market direction, making it one of the popular vehicles for investors eyeing easy profits. High rubber inventories in April in Japan and elsewhere, partly due to the Thai government’s plans to sell 200,000 tonnes of rubber from state inventory, were putting downward pressure on the market, he added. The Singapore market was closed for a public holiday on Friday.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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