Rubber Drops as China's Slower Car Sales Growth Increases Demand Concern

Rubber declined for a second day after data showed car sales growth in China slowed, raising concern that demand may weaken from the largest consumer of the commodity used to make tires.

Futures in Tokyo dropped as much as 1.5 percent after advancing last week by 2.4 percent. Today’s losses were limited as the Japanese currency weakened after the party of Prime Minister Naoto Kan lost control of Japan’s parliament’s upper house, boosting the appeal of yen-based contracts.

Sales of cars, sport-utility vehicles and multipurpose vehicles in China, the largest auto market, rose 19 percent from a year earlier to 1.04 million last month, the China Association of Automobile Manufacturers said July 9. It was the slowest pace since March 2009 as dealers’ inventories rose after inflation quickened in May to an annual 3.1 percent rate, the fastest in 19 months, reducing buyers’ spending power.

“Concern about Chinese car sales put a drag on rubber futures,” Kazuhiko Saito, an analyst at Tokyo-based commodity broker Fujitomi Co., said today by phone.

December-delivery rubber lost as much as 4 yen to 269 yen per kilogram ($3,018 a metric ton) before trading at that price on the Tokyo Commodity Exchange at 10:59 a.m.

China’s passenger-car sales have risen every month since February 2009 after the government halved the consumption tax on small vehicles to 5 percent the preceding month as part of an economic stimulus package. Vehicle demand surged 46 percent to 13.6 million last year, surpassing the U.S. for the first time.

Tax Increase

The small-car sales tax was raised to 7.5 percent this year, and June was the third straight month of slowing demand. Monthly sales may decline from year-earlier levels during the second half of 2010, Credit Suisse Group AG analysts Adrian Chan and Hung Bin Toh wrote in a report on May 26.

The yen was at 89.10 per dollar at 10:38 a.m. in Tokyo from 88.62 last week. The ruling Democratic Party of Japan won 44 seats in yesterday’s election, compared with 51 for the opposition Liberal Democratic Party, according to public broadcaster NHK. The result may undermine the ruling party’s efforts to cut the world’s largest public debt.

Cash-rubber prices have been pressured by delays in orders from Chinese buyers and worries over a global economic slowdown, according to the Rubber Institute of Thailand. The benchmark price in Thailand remained unchanged at 112.85 baht ($3.49) a kilogram on July 9.

November-delivery rubber on the Shanghai Futures Exchange lost 0.2 percent to 22,060 yuan ($3,257) a ton at 9:40 a.m. local time.

China’s natural-rubber inventories rose 3,429 tons to 19,411 tons, the bourse said on July 9, based on a survey of 10 warehouses. It was the second weekly increase after reaching the lowest level since January 2003.

(bloomberg.com)