By Bloomberg News
July 14 (Bloomberg) -- Natural rubber futures in Tokyo and Shanghai may extend recent declines if Vietnam, the fifth- biggest producer, resumes full border trade with China after it was halted last month to combat smuggling, analysts said.
Anti-smuggling efforts by the Chinese and Vietnamese governments have cut off supplies for several weeks, Li Shiqiang, general manager at Sri Trang (Shanghai) Ltd., a unit of Thailand’s largest publicly traded rubber exporter, said in a phone interview.
“For the past few months, the border gates to China have been sometimes open, sometimes closed. Prices were unstable, causing a lot of difficulty for Vietnam’s rubber companies,” Dinh Thi Thanh Tam, deputy director at Hoa Thuan Co., a natural rubber producer and exporter, said from Ho Chi Minh City.
A rise in supply from Vietnam may increase pressure on prices amid concern that demand is weakening as auto sales in China slow and uncertainty lingers about the strength of the global economic recovery, Guo Cheng, analyst at Yongan Futures Co., said by phone from Beijing.
Tokyo rubber tumbled to the lowest in more than a month yesterday, dropping 2 percent to 260.1 yen a kilogram ($2,923 a metric ton) on concern that demand may be slowing as supplies increase from Thailand, the world’s biggest producer. The most- active contract in Shanghai declined 2 percent to 20,985 yuan ($3,099) a ton.
December-delivery rubber climbed 1.7 percent to 264.5 yen a kilo at 9:58 a.m. in Tokyo. The price more than doubled last year as China’s auto sales surged to 13.6 million, supplanting the U.S. as the biggest vehicle market.
Border Gates
“We have heard that some tire makers have secured some natural rubber shipments from Vietnam lately, a sign that supply is to resume from that country,” Guo said. Vietnam exports about half a million tons of natural rubber a year, almost all of it to China, he said.
Chinese businesses typically prefer border trade over official trade because it has a lower import tax and doesn’t require quality control certificates, said Tran Thi Thuy Hoa, Secretary-General of the Vietnam Rubber Association.
Rubber exports to China have the potential to expand this month as supplies from Vietnam increase and businesses in China “still have demand,” Ho Chi Minh City-based Hoa said in a phone interview. “The association has suggested rubber exporters improve quality so they can export via official trade, instead of border trade, and be less dependent on China’s policy,” she said, referring to border closures.
Car Sales
“The cheap price of Vietnam rubber and its proximity to China always make it popular among Chinese buyers, so a resumption of trade will definitely increase supply into China,” Yongan Futures’ Guo said yesterday.
The interrupted border trade has helped create a backwardation, where cash prices are more expensive than contracts for delivery in future months, typically indicating an immediate supply shortage, Li said.
Still, China’s passenger-car sales to dealerships grew at the slowest pace in 15 months in June as inflation reduced purchasing power and economic growth showed signs of cooling, pressuring rubber prices.
Sales of cars, sport-utility vehicles and multipurpose vehicles in the world’s largest auto market rose 19 percent from a year earlier to 1.04 million last month, the China Association of Automobile Manufacturers said on July 9. It was the smallest increase since March 2009.
“Slower growth in auto sales has affected the tire makers,” Li said. “The Chinese tire makers are not aggressive buyers these days; they are only buying raw materials hand-to- mouth because their end-product inventory is quite high.”
Damped Sentiment
China is not short of natural rubber at the moment as the country imported 120,000 metric tons in June, a gain of 33 percent from a year ago, the customs bureau said on July 10. Rubber inventories increased 3,429 tons to 19,411 tons, based on a survey of 10 warehouses, the Shanghai Futures Exchange said on July 9.
“Improved supply in southern Thailand amid an absence of orders from China also damped market sentiment,” said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co. An average of 300 tons a day of ribbed smoked sheets is bring traded in Thailand’s southern province markets this month, compared with about 100 tons a day last month, Chaiwat said.
Vietnam is the world’s fifth-biggest rubber producer, after Thailand, Indonesia, Malaysia and India. The country may produce 770,000 million tons this year, up from 723,700 tons last year, according to the Association of Natural Rubber Producing Countries in its June newsletter.
(bloomberg.com)
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