Rubber Declines From Record as Strengthening Yen Weakens Contract Appeal

Rubber declined as investors sold the commodity to lock-in gains after it climbed to a record for a sixth day and as a stronger Japanese currency weakened the appeal of yen-denominated contracts.

June-delivery rubber lost as much as 2.6 percent to 406.6 yen per kilogram ($4,933 a metric ton), the lowest level since Dec. 20, before settling at 407.8 yen on the Tokyo Commodity Exchange. The most-active contract climbed to a record 419.3 yen yesterday, extending this year’s advance to 51 percent.

The dollar dropped to a three-week low against the yen after China raised interest rates for the second time in two months. China’s stocks fell for a fifth day, the longest losing streak since July, on concern the government will raise interest rates further to curb inflation.

“A higher yen spurred sales as the market was ripe for profit-taking,” Kazuhiko Saito, an analyst at Tokyo-based broker Fujitomi Co., said today by phone. “Concern about further rate increase in China is another drag on futures.”

The Shanghai Composite Index slid 0.9 percent to 2,756.197 at 2:18 p.m. local time, extending yesterday’s 1.9 percent drop, after the People’s Bank of China increased key one-year lending and deposit rates by a quarter percentage point on Christmas Day.

May-delivery rubber in Shanghai dropped 2.5 percent to 36,180 yuan ($5,461) a ton 2:27 p.m. local time. It retreated from a record 38,920 yuan on Nov. 11 amid concern China may take steps to cool inflation and economic expansion.

“Investors’ response towards the rate increase was divided yesterday,” said Deng Changrong, a strategist at Huaxi Securities Co. in Shenzhen. “As the market moves downward, the pessimism and uncertainty seem to get stronger.”

Supply Shortage

Losses in rubber futures were limited by expectations a supply shortage may worsen early next year as top exporter Thailand enters a low-production period, Saito at Fujitomi said.

Latex production in Thailand is set to shrink as growers will reduce tapping of rubber trees from February to April during the so-called “wintering” period. The seasonal drop in output may worsen a supply shortage as global demand will keep rising, led by car sales in China and India.

The cash rubber price in Thailand stayed at a record 149.55 baht per kilogram today after rising 0.3 percent yesterday, boosted by limited supply from the country’s southern provinces amid strong demand for tires, according to the Rubber Research Institute of Thailand.

China Cars

China’s sales of passenger cars including multipurpose and sport-utility vehicles increased 29.3 percent to 1.34 million last month, higher than the previous record of 1.32 million in January, according to the China Association of Automobile Manufacturers. The pace of growth was the fastest since April.

The yen gained to 82.42 per dollar at 3:32 p.m. in Tokyo from 82.81 yesterday. The dollar also came under pressure on speculation a U.S. report today will show home prices fell.

The median forecast of a Bloomberg News survey of economists showed the S&P/Case-ShillerIndex of property values dropped 0.2 percent in October from a year earlier, the first decline since January.

China’s central bank raised one-year lending and deposit rates by 25 basis points on Dec. 25 in its second move since mid-October. China may raise rates as many as three times in the first half of next year, according to Morgan Stanley, while JPMorgan Chase & Co. forecasts two increases in that period.

China reported an inflation rate of 5.1 percent for November, the highest in 28 months. Exports last month reached a record $153.3 billion and the trade surplus exceeded $20 billion for the fifth time in sixth months, indicating a recovery in international trade from the global financial crisis.

(Source: http://www.bloomberg.com/news/2010-12-28/rubber-declines-from-record-as-strengthening-yen-weakens-contract-appeal.html)