* April contract expires at record price for spot contract
* Massive buy-back into expiry triggers CBs, ups volatility
* Spike in spot contract price spreads across contracts
* For a technical view on TOCOM rubber, see [ID:nSGE63M0CY] (Adds technical analysis, background, quotes)
By Chikako Mogi
TOKYO, April 23 (Reuters) - Tokyo rubber futures are expected to continue to gain on tight physical supply, strong demand from China and lower cost compared to spot physical prices, traders said on Friday.
The spot April contract, which expired Friday, rose as high as 472 yen, the highest ever for any spot contract, and which pulled up nearby contracts. [ID:nSGE63M0A5]
The sharp gain led the Tokyo Commodity Exchange to investigate recent price volatility in rubber futures.
"Given the recent sharp moves in rubber prices, we are talking to members of the exchange to find out what has caused the recent volatility and checking open interest," a TOCOM spokesman said. [ID:nTOE63M04O]
On the physical market, Thai RSS3 was offered at a record high of $4.10 per kg earlier this month. TOCOM's May contract rose as far as 409 yen ($4.38) on Friday, but the next nearby contract for June delivery and beyond, hovering around 355 yen ($3.80), still makes Tokyo look cheap for overseas buyers.
Japan's largest commodity exchange, which lists gold, platinum, rubber and other industrial commodity futures, conducts such hearings when price actions appear excessive, though so far it has found no irregularities, the spokesman said.
But bets on prices falling, despite the rise in physical prices which pulled futures higher, were left uncovered until the very last minute and raised concerns about whether some commodity brokerages have failed to properly educate general investors about the practices of delivery, some traders said.
Other traders however pointed to a fundamental reason of tight supply for the spike in prices as weather conditions in top producer Thailand remain unfavourable.
"By mid-week this week, concerns about failed deliveries disappeared. It was fortunate that some hedgers unloaded their long positions so short sellers could buy back and close their positions and bail out of the market, at a huge loss," said a dealer at a Japanese commodity brokerage.
"But there are concerns about next month and beyond, given that prices have risen by more than 100 yen in the past month and supplies remain tight," the dealer said.
Shipments from Thailand to Japan have been delayed, making commodities brokerages reluctant to let go of their rubber holdings in Tokyo, where futures prices are still well below that of physical prices, even with the recent market spike, a dealer at another commodities trading house said.
An internal rule by TOCOM says on the 15th of the month, brokers are advised to remind their customers about delivery on spot contracts, traders said.
"If you were short selling, you should know this and should have closed your positions. Those who held their positions open until the end either took market volatility lightly or were not properly advised by brokerage houses," one dealer said.
Japan's crude rubber inventories totalled 6,477 tonnes as of March 31, down 10.3 percent from 10 days earlier, falling steadily from 8,222 tonnes as of Feb. 28, the highest level since July 20, and approaching a record low of 3,902 tonnes on Nov. 10. [ID:nTOE63E08K]
The drawdown in inventories reflects Japan's exports to China, which imported 28,606 tonnes of synthetic rubber from Japan in March, up 60.84 percent from a year earlier. [ID:nEAP001316]
The outlook for continued tight supply WILL ALSO KEEP INTENSIVE UPWARD PRESSURES ON NEARBY FUTURES CONTRACTS as short sellers will have to buy back the spot contract before its expiry, otherwise they will need to deliver the raw material.
"The fundamental issue here is the tight supply, keeping the negative spread for a while until seasonal factors in producer countries normalise," said Hiroyuki Kikukawa, general manager at Nihon Unicom.
But given that commodities prices generally tend to tread higher into the summer, the resumption in rubber tapping may not have much of a cooling effect on prices, he added. ($1=93.44 Yen)
(in.reuters.com)
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