Rubber May Drop 22% as Rally ‘Too Far, Too Fast’

By Aya Takada and Yasumasa Song

April 20 (Bloomberg) -- Rubber prices may drop as much as 22 percent by the end of 2010 as this month’s rally to a record was too steep for tire makers, said an official at Marubeni Corp., Japan’s largest trader of the commodity.

The benchmark cash price may range from $3 to $3.70 a kilogram in the second half of the year, from a record $3.85 yesterday, Kazutaka Sonomoto, manager at Marubeni’s rubber section, said in an interview.

Rubber surged to a record this month as Thailand, the world’s largest producer and exporter, entered a seasonal low- output period, reducing supplies amid a jump in demand from Chinese tire makers. The most-active futures contract on the Tokyo Commodity Exchange climbed to a 21-month high on April 16, while the immediate-delivery contract surged to a record today.

“The latest rally was too far, too fast,” Sonomoto said yesterday in Tokyo. “Tire makers with technological know-how will probably shift to synthetic rubber” or other cheaper alternatives, he said.

Rising prices have slowed natural rubber purchases by China, the world’s largest consumer, said Takaki Shigemoto, an analyst at research and investment company JSC Corp. in Tokyo. Buyers are “not in a rush to purchase,” he said by phone today.

Chinese synthetic rubber imports jumped to a record 182,570 tons last month, according to customs data. Natural rubber inventories monitored by the Shanghai Futures Exchange have plunged 68 percent since reaching a five-year high in January.

Synthetic Rubber

The price of synthetic rubber, which typically moves in line with crude oil, is about $2,500 a ton, Sonomoto said yesterday. That compares with $3,501 a ton for the most-active natural rubber contract in Tokyo today.

“Tire makers cannot increase the prices of their products as rapidly as the rally in the rubber market,” he said, because the gap between rubber prices and affordable levels for end- users is widening, he said.

Prices may also come under pressure if the world’s fastest- growing major economy allows the yuan to appreciate against the dollar, Sonomoto said.

Futures price movements in Shanghai, the world’s most- active rubber market in terms of trading volume, are becoming more influential on other markets, including Tocom, he said.

“If China revalues the yuan, the action will likely put a drag on Shanghai futures, leading to sales of rubber in Tokyo and other markets,” he said. Tocom provides the global benchmark for rubber prices as the market, unlike Shanghai, is open to hedgers and speculators from any country.

Yuan Appreciation

China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one-time jump in value that might endanger export jobs, a survey showed this month.

Twelve of 19 respondents surveyed by Bloomberg said the central bank will allow the currency to float more freely this quarter, five expect it to happen by Sept. 30, and the rest see the move by year-end.

Global tire production is expected to grow by 3 percent to 5 percent a year, led by rising car sales in China, the world’s largest vehicle market, Sonomoto said.

“Chinese rubber demand will keep expanding as per-capita car ownership in the country may increase to the level of Japan,” he said.

China’s natural rubber consumption is forecast to grow 10 percent from last year to 3.35 million metric tons, according to a report issued last month by the Association of Natural Rubber Producing Countries.

Rubber Prices

The free-on-board price, or price excluding freight and insurance, of May-delivery Thai ribbed smoked sheet, the grade traded in Tokyo, rose to a record 124.30 baht ($3.85) per kilogram yesterday, according to the Rubber Institute of Thailand. Prices in Indonesia, the second-largest producer, jumped to the highest since 2008 this year, Rubber Association of Indonesia Chairman Asril Sutan Amir said April 16.

Rubber for September delivery on Tocom gained 3.1percent to 322.7 yen a kilogram ($3,480 a ton). The price has dropped 5 percent since reaching a 21-month high of 338.5 yen on April 16. April-delivery rubber on Tocom surged 10 percent to a record 440 yen per kilogram.

September-delivery rubber on the Shanghai Futures Exchange climbed 1.7 percent to 24,735 yuan a ton.

(businessweek.com)