Rubber May Jump 25% to 30-Year High on China, Japan Broker Says

By Aya Takada and Yasumasa Song

May 28 (Bloomberg) -- Rubber may climb at least 25 percent to the highest level in three decades as demand increases in China, the largest consumer, outweighing concern European use will slow, said an executive manager at broker Yutaka Shoji Co.

Futures may surpass the 2008 peak of 356.9 yen per kilogram ($3,922 a metric ton) on the Tokyo Commodity Exchange this year to reach the highest level since March 1980, said Kazuya Tetsu, who traded the commodity for more than 30 years at Marubeni Corp. before joining Yutaka Shoji last month.

Prices gained 3.6 percent this year after doubling in 2009 as the rally slowed on concern the sovereign debt crisis in Europe will stall the economic recovery, hurting demand for commodities. Car ownership in China, the world’s largest auto market, will expand, boosting consumption of the raw material used in tires, Tetsu said in an interview in Tokyo.

“China’s influence on the market and global economies is getting stronger,” Tetsu said yesterday. Demand from the country “is setting the market’s direction,” he said.

Rubber for November-delivery, the most-active contract in Tokyo, gained 1.8 percent to 286.20 yen at 2:17 p.m. local time today. The price reached a five-month low of 250.9 yen on May 17, down from a peak of 338.5 yen about a month earlier.

A price jump will benefit producers in Thailand, Indonesia and Malaysia, the biggest suppliers, and potentially boost costs for tire makers such as Bridgestone Corp. Marubeni is the country’s biggest trader of the commodity and Yutaka is one of the top five raw-materials brokerages.

Inflation Hedge

The European debt turmoil may force governments to keep interest rates low and delay implementation of their “exit policy”, leading to renewed investor interest in commodities as an inflation hedge, Tetsu said. Europe represented 15 percent of global consumption estimated at 10.2 million tons in 2008, according to International Rubber Study Group.

Sales of cars, sport-utility vehicles and multipurpose vehicles in China jumped 33 percent from a year earlier to 1.11 million units in April, according to the China Association of Automobile Manufacturers. In the first quarter sales jumped 76 percent to 3.52 million units.

Consumption of natural rubber in China may grow 10 percent this year to 3.35 million tons from 2009, the Association of Natural Rubber Producing Countries said in its May report.

Supplies of natural rubber may increase seasonally, helping curb prices on the cash market, Kazunori Kokubo, general manager at the international business section of Yutaka Shoji, said in the same interview.

Narrow Gap

“Tightness in supply will probably be alleviated in July as the influence from wintering will diminish,” he said. Trees shed their leaves during wintering, or the low-production period that runs from February to April, leading to lower latex output.

The increase in production may narrow the price gap between the nearby month on the Tokyo exchange and the most active contract, Kokubo said. June-delivery rubber added 1 percent to 373 yen at 2:06 p.m. local time.

Total production of natural rubber will grow 6.2 percent to 9.37 million tons this year, according to the ANRPC report. The association represents Cambodia, China, India, Malaysia, Indonesia, Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

Cash prices in Thailand, the largest producer and exporter, increased as rains in southern provinces disrupted tapping, according to the Rubber Research Institute of Thailand. Thai RSS-3 grade rubber for June delivery rose 1.6 percent to 125.40 baht ($3.85) a kilogram, the institute said on its website yesterday. The price climbed to a record 130.55 baht April 27.

(bloomberg.com)