Rubber Slumps to Five-Month Low as Europe Crisis Cuts Appeal

By Aya Takada and Supunnabul Suwannakij

May 7 (Bloomberg) -- Rubber tumbled to the lowest price in almost five months, erasing this year’s gains, on concern that Europe’s debt crisis may slow the global economic recovery and weaken demand for the commodity used to make tires.

Futures in Tokyo fell as much as 7.2 percent to the lowest level since Dec. 16, extending declines from the 21-month high of 338.5 yen ($3,707 a metric ton) a kilogram reached on April 16. The contract has dropped 4.9 percent this year. The market also declined after the yen rose to a two-month high against the dollar, cutting the appeal of yen-based contracts.

Asian stocks plunged, following a rout in U.S. equities, on concern the European debt crisis will spread. The MSCI Asia Pacific Index slid 1.7 percent to 117.86 as of 3:55 p.m. in Singapore, and was set to close at the lowest level since Feb. 26. U.S. stocks tumbled the most in a year yesterday, while the euro dropped the most since credit markets collapsed in 2008.

“Europe’s debt crisis stoked concern that the global economic recovery may falter,” Shuji Sugata, research manager at Mitsubishi Corp. Futures Ltd. in Tokyo, said today by phone. “Investors are becoming increasingly cautious about buying industrial commodities.”

Rubber for October delivery, the most-active contract, fell as much as 20.1 yen to 259.5 yen per kilogram before settling at 262.6 yen on the Tokyo Commodity Exchange. The price has plunged 18 percent in the past five sessions and is set for the worst weekly performance since the five days ended Jan. 23, 2009.

Fiscal Crisis

“Fear of risk drove Tocom lower,” said Felix Yeo, a trading manager at the Singapore unit of Marubeni Corp. The crash in financial markets led to “massive cut-loss selling. This has definitely dampened investor sentiment,” he said.

Europe’s fiscal crisis could threaten banks in Portugal, Spain, Italy, Ireland and the U.K., Moody’s Investors Service said in a report published this week. Standard & Poor’s last month downgraded Greece’s debt to junk and followed with cuts to Portugal and Spain.

European Central Bank President Jean-Claude Trichet held interest rates at a record low of 1 percent yesterday and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures.

Rubber also declined as supplies from Thailand, the world’s largest exporter, will increase after a low-production period, Sugata said. Latex production slows in February to April as growers reduce tapping, during a period known as wintering.

Slowing Growth

Supplies from three markets in southern Thailand totaled about 160 tons a day this week, compared with less than 50 tons a day during wintering, according to Chaiwat Muenmee, an analyst at DS Futures Co.

The free-on-board price of Thai RSS-3 grade rubber for June delivery, which excludes freight and insurance, fell 5.2 percent to 109.75 baht ($3.39) a kilogram today, according to the Rubber Institute of Thailand. The price climbed to a record 130.55 baht on April 28.

Rubber also dropped as China, the world’s largest consumer, moved to slow economic growth, Sugata said. The People’s Bank of China said on May 2 it will increase lender reserve requirements, the latest official effort to prevent the world’s fastest- growing economy from overheating.

September-delivery rubber on the Shanghai Futures Exchange fell 2.3 percent to settle at 22,140 yuan ($3,243) a ton. Earlier it dropped to 22,000 yuan, the lowest level since Feb. 9.

(bloomberg.com)