Rubber May Drop 22% as Rally ‘Too Far, Too Fast,’ Marubeni Says

Rubber May Drop 22% as Rally ‘Too Far, Too Fast,’ Marubeni Says

April 20 (Bloomberg) -- Rubber may drop by as much as 22 percent from a record by the end of this year as the recent rally was too steep for tire makers, said Marubeni Corp., the largest Japanese trader of the commodity.

The cash price for ribbed smoked sheet rubber may trade from $3 to $3.70 a kilogram in the second half of this year, Kazutaka Sonomoto, manager at Marubeni’s rubber section, said in an interview yesterday. Futures are traded on the Tokyo Commodity Exchange.

Rubber staged a record rally this month as Thailand, the world’s largest producer and exporter, entered a low-production period, reducing supplies amid a jump in Chinese tire demand. The most-active contract on Tocom climbed to a 21-month high on April 16, while the immediate-delivery contract surged to a record today.

“The latest rally was too far, too fast,” Sonomoto said yesterday in Tokyo. “Tire makers with technological know-how will probably shift to synthetic rubber” or other cheaper alternatives, he said.

Rising prices have slowed rubber purchases by China, the world’s largest consumer, said Takaki Shigemoto, an analyst at research and investment company JSC Corp. in Tokyo. Buyers are “not in a rush to purchase as they have enough stockpiles,” Shigemoto said by phone.

“Tire makers cannot increase the prices of their products as rapidly as the rally in the rubber market,” Sonomoto said, because the gap between rubber prices and affordable levels for end-users is widening, he said. The share price of Bridgestone Corp., the world’s largest tire maker, has lost 8 percent to 1,509 yen in Tokyo this year.

Synthetic Rubber

The price of synthetic rubber, which typically moves in line with crude oil, is about $2,500 a ton, Sonomoto said. That compares with the last traded price of $3,442 a ton for the most-active natural rubber contract in Tokyo.

Global tire production is expected to grow by 3 percent to 5 percent a year, led by rising car sales in China, the world’s largest vehicle market, Sonomoto said.

“Chinese rubber demand will keep expanding as per-capita car ownership in the country may increase to the level of Japan,” he said.

China’s consumption of natural rubber is forecast to grow 10 percent from last year to 3.35 million metric tons, according to a report issued last month by the Association of Natural Rubber Producing Countries.

The country’s National Development and Reform Commission sold the entire 30,000 tons on offer from state stockpiles at this year’s first auction on April 14 for as much as 26,000 yuan ($3,809) a ton, compared with the 22,200 yuan base price. It plans to auction another 30,000 metric tons of rubber on April 23, the commission said on its Web site April 16.

Price Pressure

The free-on-board price, or price excluding freight and insurance, of Thai RSS-3 grade rubber for May delivery rose to a record 124.30 baht ($3.85) per kilogram yesterday, according to the Rubber Institute of Thailand. SIR-20 grade rubber from Indonesia, the second-largest producer, has jumped to $3.35 a kilogram this year, a level not seen since 2008, Rubber Association of Indonesia Chairman Asril Sutan Amir said April 16.

Still, rubber prices in China may come under pressure if the world’s fastest-growing major economy allows the yuan to appreciate against the dollar, Sonomoto said.

Futures price movements in Shanghai, the world’s most- active rubber market in terms of trading volume, are becoming increasingly influential on other markets, including Tocom, he said.

Yuan Appreciation

“If China revalues the yuan, the action will likely put a drag on Shanghai futures, leading to sales of rubber in Tokyo and other markets,” he said. Tocom provides the global benchmark for rubber prices as the market, unlike Shanghai, is open to hedgers and speculators from any country.

China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one-time jump in value that might endanger export jobs, a survey showed this month.

Twelve of 19 respondents surveyed by Bloomberg said the central bank will allow the currency to float more freely this quarter, five expect it to happen by Sept. 30, and the rest see the move by year-end.

Rubber for September delivery on Tocom gained 1.8 percent to 318.6 yen a kilogram ($3,442 a ton) at 11:11 a.m. local time. The price has slumped 5 percent since reaching a 21-month high of 338.5 yen on April 16. April-delivery rubber on Tocom gained 4.5 percent to a record 418 yen per kilogram.

September-delivery rubber on the Shanghai Futures Exchange dropped for a second day, tumbling 4 percent to 24,325 yuan a ton.