Natural Rubber Outlook ‘Bearish’ on China Tightening

May 29 (Bloomberg) -- Rubber prices may fall as tightening in China’s real estate market may cut demand, an executive at Sinochem International Corp. said.

“The property market is a concern,” Yao Xingliang, vice general manager at Sinochem, said today at a conference in Shanghai. “If the property market weakens, transportation will be greatly reduced, threatening rubber demand from the tire industry.” Sinochem is China’s biggest rubber trader and the country is the world’s largest consumer of the material.

Rubber in Tokyo reached a 21-month high in April on concern about reduced output and as economies recovered from recession, stoking sales of cars and tires. China has restricted banks from extending loans for purchases of multiple homes, increased mortgage rates and raised down payment requirements in an attempt to deflate real estate bubbles.

“We are generally bearish on the natural rubber outlook later this year after prices had a big jump last year,” and amid government tightening measures and the external situation, said Yao.

Rubber on the Tokyo Commodity Exchange has gained 3.2 percent this year after doubling in 2009 as the rally slowed on concern the debt crisis in Europe will stall the economic recovery. The contract for November delivery gained 1.2 percent yesterday to close at 284.8 yen per kilogram. Futures reached a 21-month high of 338.5 yen on April 16.

‘Downside Limited’

Shares of China Vanke Co. and Poly Real Estate Group Co., China’s two biggest property developers, have fallen at least 30 percent this year after the government tightened bank lending. Housing prices surged a record 12.8 percent last month, even after the government intensified a crackdown on speculation to limit the risk of asset bubbles and keep housing affordable.

Still, “we also think the downside is limited given the economic recovery,” Sinochem’s Yao said. The market bottom for rubber in China is about 20,000 yuan ($2,928) a ton, he said. That’s about 13 percent below the closing price yesterday on the Shanghai Futures Exchange where the September contract ended at 22,950 yuan a ton.

Rubber may climb at least 25 percent to the highest level in three decades as demand increases in China outweighing concern European use will slow, Kazuya Tetsu, executive manager at broker Yutaka Shoji Co., said May 27. Car ownership in China, the world’s largest auto market, will expand, boosting consumption of the raw material used in tires, Tetsu said.

Sales Rise

China’s vehicle sales may rise 17 percent this year to 16 million as annual demand for automobiles may eventually exceed 30 million, an official at the State Information Center said last month.

The nation’s vehicle sales surged 46 percent last year to 3.6 million units, overtaking the U.S. as the world’s biggest auto market, after the government reduced the consumption tax on small vehicles and gave subsidies to encourage buying in rural areas.

(businessweek.com)