Rubber Futures Tumble as China May Raise Lending Costs, Curbing Demand

Rubber tumbled on speculation that China, the world’s largest consumer, will raise interest rates to curb inflation, damping demand for commodities.

April-delivery rubber on the Tokyo Commodity Exchange dropped as much as 3.6 percent to 345.3 yen per kilogram ($4,139 a metric ton) before settling at 353.5 yen. Futures in Shanghai slumped by the daily price limit.

China could increase interest rates for a second time this year as soon as Nov. 19, the China Securities Journal reported today, citing an unidentified analyst. The country’s inflation accelerated to 4.4 percent in October, the fastest pace in two years. Earlier announcements signal that rate decisions are often released on Fridays or around the 20th of the month, the Beijing-based newspaper reported.

“Concern about China’s rate increase is the largest drag on the market as rubber advanced on optimism about the country’s demand,” Kazuhiko Saito, an analyst at Tokyo-based broker Fujitomi Co., said today by phone.

May-delivery rubber on the Shanghai Futures Exchange fell 5 percent from the previous settlement, the daily limit, to 32,500 yuan ($4,896) a ton, the lowest level since Nov. 3. The price retreated 16 percent from a record high of 38,920 yuan reached on Nov. 11.

Confidence Falls

A Chinese consumer confidence index fell for the first time in six quarters because of concerns over inflation. The measure dropped to 104 in the third quarter from 109 in the previous three months, according to a statement released by Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center in Beijing today.

China’s demand for natural rubber may grow 3.7 percent to 2.8 million tons, while its demand for synthetic rubber may jump 14.8 percent to 3.65 million tons, Saito at Fujitomi said.

Rubber futures in Tokyo reached a 30-year high of 383 yen on Nov. 11 as producers had difficulty catching up with growing demand because of rain and flooding that disrupted latex output in Thailand, the world’s largest producer.

“Rubber supply from southern Thailand remains low as rain is still disrupting output,” said Saito. “Tight supply will probably provide support to cash prices.”

The cash price in Thailand declined to 130 baht ($4.33) a kilogram today from 131 baht yesterday, according to the Rubber Research Institute of Thailand. The price for so-called RSS-3 grade rubber climbed to a record of 132 baht on Nov. 12.

Natural-rubber output in Thailand may decline by 10 percent to 870,000 tons in the fourth quarter, reducing total output this year by 5 percent to 3 million tons, according to an estimate by the Thai Rubber Association. Annual supply may fall by 50,000 tons over the next seven years until new trees mature, association President Luckchai Kittipol said on Nov. 10.

(Source: http://www.bloomberg.com/news/2010-11-17/rubber-futures-tumble-as-china-may-raise-lending-costs-curbing-demand.html)