Natural rubber futures on the Tokyo Commodity Exchange rose by as much as 4.5% during intraday trading Wednesday, and settled above the first daily upper limit on expectations of fresh demand after announcement that China will reduce rubber import duties effective Jan. 1.
Physical prices rose by around $100 per ton, prompting buyers to "run for the hills," said a Singapore-based trading executive.
The benchmark Tocom May contract rose by the first daily limit of Y10 a kilogram and continued to rise after trading resumed. The contract settled up Y10.6 at Y263.8/kg.
The contract continued to rise in the night session and touched a fresh 14-month high of Y268.5/kg before a minor correction. Night session prices aren't included in intraday trading.
China's finance ministry said Wednesday that it will cut the import duty on natural rubber to a maximum of CNY2,000 a metric ton from CNY2,600/ton. The tariff on smoked sheet rubber will be cut even more sharply, to CNY1,600/ton from CNY2,600/ton.
Buyers who have been on the sidelines waiting for the 2010 schedule of taxes are now expected to re-enter the market.
"The general impression is that China was slow in buying for the last few weeks and may step up purchases early next year," said Chiaki Furui, chief executive of Bangkok-based commodities brokerage Agrow Enterprise.
Prices may quickly rise to Y270/kg as overall global demand for natural rubber is strong, he said.
Even though Thailand is in its high production season, there isn't any major surplus in the global market, Furui said.
There has been aggressive fund buying due to China's duty cut, said Nick Ng, a Tokyo-based broker with Okachi Corp.
Somewhere between 1,000 and 2,000 lots of rubber were bought by funds on Tocom following China's announcement of the cuts in duties, he said.
The market is overbought and a correction is in the offing, he said.
The benchmark March contract at the Shanghai Futures Exchange settled 2.9% higher at CNY22,365/ton.
Chinese tire manufacturers have long been demanding cuts in import duties on natural rubber to reduce raw material costs. The reductions will cushion the impact of a special 35% import duty imposed by the U.S. on light Chinese tires in September.
However, sharp increases in natural rubber prices have partly offset the advantages of the lower duties.
China's imports are markedly shifting toward duty-free compound rubber from major Southeast Asian growing countries, traders said.
"Demand for natural rubber may increase, but it will go to China more in form of compound grades," said an exporter in Singapore.
To avoid customs tariffs altogether, many buyers prefer to import compound rubber, which is 97%-99.5% natural rubber--with synthetic rubber comprising the balance.
Despite strong tire industry demand amid surging sales of automobiles, China's imports of natural rubber fell 2.8% from January-November, to 1.53 million tons, according to government data.
Meanwhile, the International Rubber Study Group estimates that natural rubber content in China's compound rubber imports during the January-October period was around 742,000 metric tons compared with 364,000 tons during the whole of 2008.
(Source: irco.biz)
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