Natural rubber prices on the Tokyo Commodity Exchange have risen nearly 170% over the past year, but rubber futures could rise another 10% in the first quarter, taking the benchmark contract to the Y300/kg level for the first time in more than a year.
The ongoing rally will be sustained by tightening supply in key producing countries such as Thailand and Malaysia and strong demand in China which has cut the import tax on rubber, industry executives and analysts said.
Prices are already hovering around Y270/kg, their highest level in 15 months, and traders said they expect the upside potential to remain intact.
Last week, China announced a 23% cut in the import duty on natural rubber to CNY2,000/ton for 2010. The duty on RSS grades was cut by 38% to CNY1,600/ton.
The duty cut is a signal that China wants to import more natural rubber, said Michael Coleman, managing director of Aisling Analytics, a Singapore-based commodities hedge fund advisor.
He said increased Chinese demand could push prices to the Y300/kg level as early as next month.
Strong Chinese demand for cars and tires is driving up prices of rubber, said Shuji Sugata, an analyst with Mitsubishi Corporation Futures and Securities.
China's tire output rose 36% on year in November to 60.19 million units, fueled by strong passenger vehicle sales that almost doubled to a record 1.04 million units.
Around 70% of the world's natural rubber is used in tires. China is the world's largest consumer of natural rubber with its imports rising 19% on month to 120,641 tons in November.
Imports are expected to rise further with the return of importers who had moved to the sidelines ahead of the tax announcement.
Chinese importers weren't buying much in the last few weeks, waiting for the 2010 tax schedule to be announced, said Chiaki Furui, chief executive of Agrow Enterprise, a Bangkok-based commodities brokerage.
Furui said prices will quickly rise to Y280/kg and may touch Y300/kg early next year.
Anticipating strong physical demand, institutional funds are taking up long positions on Tocom, said Nick Ng, a Tokyo-based broker with Okachi Corp. Nearly 50% of the long positions for Tocom RSS3 rubber is currently held by funds, he said.
The strength in the market is also a result of tightening supply.
Strong rains and flooding severely affected natural rubber production in Thailand and Malaysia last month with supplies getting tight, said Jom Jacob, senior economist with Association of Natural Rubber Producing Countries.
Rains have eased now but there are only limited stocks that can be carried over to the first quarter of 2010, said Furui of Agrow Enterprise.
Thailand's natural rubber output is projected to fall 12% in 2009 because of lower yields and tapping disruptions caused by rains and flooding. Malaysian production was already down 21% during the January-October period.
Improved fundamentals have meant natural rubber isn't tracking the crude market as it used to in the past, despite synthetic rubber - a crude oil by-product - being a major substitute. In the second half of 2009, natural rubber prices rose nearly 70% while crude oil has languished in the $60/barrel-$80/barrel range.
(Source: irco.biz)
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