Rubber Supply Squeeze to ‘Worsen’ in Fourth Quarter

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.

Tightening supply emerged at a time when stockpiles of China, the world’s largest buyer of natural rubber, were 73 percent lower than this year’s high, potentially bolstering prices to 28-month high. The commodity used to make tires and gloves surged 22 percent this year as wetter-than-normal weather lowered production of major producers.

“Marked change in supply scenario is remote in 2011 given the fact that yielding area is unlikely to expand before 2012,” Jom Jacob, the group’s senior economist, said in the statement.

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.

Rubber futures on the Tokyo Commodity Exchange advanced to a 27-month high of 343.3 yen per kilogram ($4,206 a metric ton) yesterday, while rubber futures in Shanghai reached a record 33,320 yuan ($4,989) a ton on speculation China will step up purchases to replenish stockpiles amid concerns over declining supplies from floods and heavy rains.

The April-delivery contract in Tokyo declined 1.2 percent to 336.1 yen per kilogram at 2:57 p.m. local time. The Shanghai contract retreated 2.5 percent to 31,850 yuan a ton.

“This is positive to the rubber prices because supply declines during the time 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. Tokyo prices may extend their rally to 357 yen, the highest level since June 2008, around the end of the year, she added.

Output to Contract

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

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

Trees couldn’t be tapped for 11 days in October following persistent rains in China’s southern island of Hainan, the nation’s main growing area, resulting in an estimated crop loss of about 15,000 tons, the group said.

Natural rubber imports by China are expected to surge 42 percent in the fourth quarter, while imports by India and Malaysia are expected to tumble by 12 percent and 37 percent, respectively, the group said.

Natural rubber inventories increased by 3,880 tons to 41,681 tons, the highest level in six months, the Shanghai Futures Exchange said on Oct. 22, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin. That was 73 percent lower than this year’s high of 151,832 tons in January.

Higher interest rates in China have raised concerns over the demand growth for natural rubber of the largest buyer, which accounts for more than 33 percent of global consumption, the group said.

(bloomberg.com)