Rubber Declines as Crude Oil Retreats, Optimism On Chinese Currency Fades

Rubber dropped for the third time in four days as the price of crude oil declined and optimism faded over China’s demand.

Futures in Tokyo declined as much as 2.1 percent after climbing 3 percent yesterday, nearing a two-week high of 286.7 yen reached on June 16. Prices gained after China signaled it will unshackle the yuan’s fixed rate to the dollar, stoking speculation that the world’s largest consumer may boost imports.

“The good news from the yuan flexibility has faded as it lacked support from Wall Street,” said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co.

Rubber for November-delivery dropped as much as 5.8 yen to 276.8 yen per kilogram ($3,039 a metric ton) before trading at 278.5 yen on the Tokyo Commodity Exchange at 11:45 a.m.

The November-delivery contract on the Shanghai Futures Exchange declined 0.7 percent to 21,535 yuan ($3,162) a ton. Yesterday, the price climbed to 22,200 yuan, the highest level since June 3.

China, the world’s largest auto market, is the biggest user of natural rubber. The nation may boost gross imports of the raw material to 1.68 million tons this year from 1.59 million in 2009, according to a May report from the Association of Natural Rubber Producing Countries.

Oil Falls

“The market is in correction mode after sharp gains yesterday,” said Kazunori Kokubo, general manager for International Business Department at Yutaka Shoji Ltd. “Oil is also down, driving the rubber market lower.”

Crude oil declined for the first time in three days as optimism faded that China’s plan to add more flexibility in the yuan’s fixed exchange rate would strengthen the global economic recovery. A drop in crude oil cuts the appetite for rubber, used to make tires.

Increasing supply from Thailand added pressure to the rubber market, Chaiwat said from Bangkok. An average of 200 tons of ribbed smoked sheet RSS-3 rubber a day is available in the market this month, compared with slightly more than 100 tons a day in May, he said.

Global rubber output may total 9.7 million to 10.2 million tons this year as drought and heavy rainfall in key producing countries including Thailand and Indonesia damage supply, Stephen Evans, the secretary-general of the International Rubber Study Group, said in an interview last week. That compares with the group’s forecast range of 10.1 million to 10.6 million tons on March 17.

Demand will probably increase by 4.4 percent this year to 9.8 million tons, based on the assumption that the economic recovery will slow, Evans said. The group forecast 10.2 million tons in March.

(bloomberg.com)