Rubber Reaches Record as Rains Threaten Thai Output

Rubber futures in Tokyo and Shanghai climbed to records amid concern that heavy rain will reduce output in top producer Thailand, worsening a supply shortage as China may step up purchases before the Lunar New Year holiday.
The physical price in Thailand also reached an all-time high.
The June-delivery contract climbed as high as 484.9 yen per kilogram ($5,860 per metric ton) before settling at 482.1 yen on the Tokyo Commodity Exchange. The May-delivery contract in Shanghai advanced as much as 1.4 percent to 41,200 yuan ($6,255) per ton.
Rains are expected to spread across the southern provinces of Thailand this week, the country’s Meteorological Department said on its Web site on Monday (January 24). The south produces about 80 percent of Thailand’s rubber.
“Concerns about adverse weather are fueling a bullish mood,” said Takaki Shigemoto, an analyst at research company JSC Corp. in Tokyo. “Chinese buying may gather pace before the New Year holiday.”
Natural-rubber inventories in China, the world’s largest consumer, decreased by 3,143 tons to 65,532 tons, the Shanghai Futures Exchange said on Jan. 21. That is 57 percent lower than last year’s peak of 151,832 tons. The week-long holiday begins in China on Feb. 2. Rubber has advanced 16 percent this month, extending last year’s 50 percent rally, as demand expands on rising car sales led by China and India.
Supply may lag behind demand as Thai production, hurt by heavy rain and floods last year, drops further as growers cut tapping during the leaf-shedding season that begins in February, reducing latex output.
“Declining inventories in China are another supportive factor to the market, which has been worried about a supply shortage,” Sureerat Kunthongjun, an analyst at Agrow Enterprise, said from Bangkok.
“Demand remains strong ahead of the low production period, which takes about two to three months before production will be back to normal.”
Monsoon rains may cause flash floods and landslides in nine of Thailand’s southern provinces, the Department of Disaster Prevention and Mitigation said on Jan. 20.
The cash price in Thailand reached a record 178.55 baht ($5.72) per kilogram on Monday (January 24) on concern that a supply shortage may worsen during the low-production season while overseas demand will remain strong, according to the Rubber Research Institute of Thailand.
Production during the so-called wintering season, which runs until May, can fall by 45 percent to 60 percent from the peak, according to the Association of Natural Rubber Producing Countries. The period occurs at the same time in northern Indonesia and Malaysia.
China’s vehicle sales may grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, according to the China Association of Automobile Manufacturers.
(Bloomberg, January 24, 2011)