Rubber Climbs for Fourth Day on Low Supplies, Crude Oil Rally

By Aya Takada and Supunnabul Suwannakij

May 31 (Bloomberg) -- Rubber advanced for a fourth day, paring a monthly loss, as low supplies from major producers and a rally in crude oil enhanced the appeal of the commodity used to make tires.

Futures in Tokyo extended two weeks of gains amid concerns that supplies may not be adequate to meet growing demand. Crude oil rose for third time in four days after the dollar fell against the euro, bolstering the appeal of commodities as a hedge against inflation.

“Supplies remain low,” Chaiwat Muenmee, an analyst at broker DS Futures Co., said by phone from Bangkok. “Coupled with rising oil prices, it helped boost gains on Tocom.”

Depleted supply after the end of the annual February-to- April low-production season, together with robust demand in Asia, will support the market, the Association of Natural Rubber Producing Countries said in its May newsletter.

Demand from China, India and Malaysia, which account for more than 45 percent of global consumption, should stay strong, the association said.

Rubber for November delivery, the most-active contract, rose as much as 0.8 percent to 287.2 yen per kilogram ($3,142 a metric ton) before settling at 285.1 yen on the Tokyo Commodity Exchange. It fell as much as 1.2 percent earlier.

“The market remains capped by concern that Europe’s debt crisis will stall economic recovery,” Kazuhiko Saito, an analyst at commodity broker Fujitomi Co. in Tokyo, said today.

Debt Concerns

Still, the most-active contract dropped for a second month, losing 2.7 percent, after investors reduced holdings of risky assets amid concern that Europe’s debt crisis will spur governments to reduce spending, slowing the region’s economic recovery. The yen fell to a one-week low after Japan’s Social Democratic Party left the three-way coalition government.

Fitch Ratings cut Spain’s AAA credit rating by one level last week, saying the nation’s debts will likely weigh on growth. Spain has the third-largest budget deficit in the euro region, where policy makers have pledged almost $1 trillion of loans to support the weakest economies and the regional currency. The rating cut for Spain increased concern that raw material demand in Europe may slow.

“A sense of caution is increasing,” said Norikazu Kitta, a strategist at Nikko Cordial Securities Inc. “Financial issues in Europe are spreading.”

Rubber cash prices in Thailand, the largest exporter, extended gains as increasing demand outpaced supply, the Rubber Research Institute of Thailand said on its website today.

Thai RSS-3 grade rubber for June delivery added 0.8 percent to 126.40 baht ($3.89) a kilogram today.

September-delivery rubber on the Shanghai Futures Exchange dropped 0.5 percent to settle at 22,845 yuan ($3,346) a ton. 

(bloomberg.com)