Rubber Rallies From Five-Month Low on European Bailout Package

By Jae Hur and Supunnabul Suwannakij

May 10 (Bloomberg) -- Rubber rallied from the lowest price in almost five months on optimism an emergency package by European policy makers will contain a sovereign-debt crisis and maintain economic growth in the region.

Futures on the Tokyo Commodity Exchange rose as much as 2.9 percent, trimming a five-day, 18 percent slump after European policy makers agreed to an emergency lending mechanism worth almost $1 trillion. Rubber also gained as crude oil rose for the first time in five days, reducing the appeal of the rival synthetic product made from petroleum.

“Last week’s panic sell-off in stocks and commodities appears to be easing at the moment with this loan package agreement,” said Hiroyuki Kikukawa, general manager of research at Tokyo-based IDO Securities Co.

Rubber for October delivery, the most-active contract, rose as much as 7.7 yen to 270.3 yen per kilogram ($2,906 a metric ton) before settling at 269.4 yen. The contract dropped to 259.5 yen on May 7, the lowest level since Dec. 16.

European finance ministers put together an unprecedented loan package that may be worth 720 billion euros ($928 billion) for debt-swamped governments in a bid to restore faith in the euro and prevent Greece’s fiscal woes spreading.

The 16 euro governments pledged to make 440 billion euros available, with 60 billion euros more from the EU’s budget, said Spanish Economy Minister Elena Salgado. The International Monetary Fund may provide a further 220 billion euros, she said.

Rally Limited

“Despite this loan package agreement, the rally in risky assets may be limited until investors fully regain confidence,” Kikukawa said.

An increase in supplies from Thailand, the world’s largest exporter, may also cap rubber’s rebound later this week, Kikukawa said. Latex production slows in February to April as growers reduce tapping, during a low-output period known as wintering.

“The EU rescue package for Greece and crude oil’s rally boosted gains on Tocom but rises may be limited on worries over increasing supply,” Chaiwat Muenmee, an analyst at DS Futures Co., said by phone from Bangkok.

The free-on-board price of Thai RSS-3 grade rubber for June-delivery, which excludes freight and insurance, dropped 0.1 percent to 109.65 baht ($3.40) a kilogram, according to the Rubber Institute of Thailand. The price climbed to a record 130.55 baht on April 28.

The decline “was driven by expectations more supply will come onto the market this month,” Chaiwat said.

September-delivery rubber on the Shanghai Futures Exchange gained 1.9 percent to 22,570 yuan ($3,285) a ton. On May 7, it dropped to 22,000 yuan a ton, the lowest level since Feb. 9.

Natural rubber inventories monitored by the Shanghai Futures Exchange fell 2,968 tons to 35,850 tons, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin, the bourse said May 7.

--Editors: Jarrett Banks, Matthew Oakley.

(businessweek.com)