Rubber Declines for Second Day on Concern China May Adjust Trading Rules

Rubber slumped a second day on concerns that China, the largest buyer, may impose stringent measures to limit speculation and lower commodity prices.

The April-delivery contract declined as much as 0.9 percent to 334 yen per kilogram ($4,092 a metric ton) on the Tokyo Commodity Exchange before trading at 335.6 yen at 11:04 a.m. local time. Rubber has gained 7.7 percent this month on concern that rain in major producing countries will cut production amid increasing demand, and has surged 21 percent this year.

“Investors are still worried the Chinese government may impose measures to reduce high prices of commodities,” Gu Jiong, analyst at broker Yutaka Shoji Co., said by phone from Tokyo.

The Zhengzhou Commodity Exchange increased the margin requirement on Oct. 26 for rice, rapeseed oil, wheat and sugar trading to 8 percent from 3 percent or 4 percent. The exchange will track “abnormal” trading and recommend investigation by watchdogs, a separate statement dated Oct. 25 said.

China’s increased liquidity after the financial crisis and government curbs on property investments have stoked commodity prices. In the past five months, cotton in Zhengzhou advanced 57 percent, rubber in Shanghai gained 44 percent, while Dalian soybean oil rose 14 percent.

Shanghai futures advanced as much as 2 percent to 31,830 yuan ($4,758) a ton after slumping 4.4 percent yesterday. The contract reached a record 33,320 yuan Oct. 26.

The rubber cash price in Thailand gained 0.2 percent to 120.55 baht ($4.02) per kilogram yesterday, boosted by worries that increasing rain in southern provinces will lower production amid persistent demand from processors, the Rubber Research Institute of Thailand said on its website. Prices will likely advance in the short term, the institute said.

Supply Shortage

Short supply in October and November will boost prices to as high as 350 yen, Jiong said.

A natural-rubber supply shortage will likely “worsen” in the fourth quarter as unseasonal rainfall continues to disrupt production from key growers, the Association of Natural Rubber Producing Countries said.

Global rubber production this year is unlikely to increase more than 5.3 percent to 9.4 million tons, from a previous forecast of 6.3 percent, the association said. A further cut in output is expected because of tapping disruptions in Malaysia, Thailand and India, the group said.

Output in Thailand, the largest producer and exporter, is estimated to fall 3.9 percent in the fourth quarter to 933,000 tons, the group said in a monthly bulletin.

China and India

Output in China and India is expected to contract during October to December because of heavy rain, the group said. India has scaled down its production forecast this year to 844,000 tons from 879,000 tons estimated earlier, while China cut its 2010 output forecast to 641,000 tons, a decline of 0.3 percent from the previous year, the group said.

“This is positive for rubber prices because supply is declining as China and Japan build up stockpiles, ahead of wintering season when producers stop tapping,” Sureerat Kunthongjun, an analyst at AGROW Enterprise Ltd., said by phone from Bangkok.

Futures may extend their rally to 357 yen, the highest level since June 2008, around the end of the year, she said.

(bloomberg.com)