Rubber Declines as Crude Oil Retreats, Optimism On Chinese Currency Fades

Rubber Declines as Crude Oil Retreats, Optimism On Chinese Currency Fades
Posted: 21 Jun 2010 10:51 PM PDT
Rubber dropped for the third time in four days as the price of crude oil declined and optimism faded over China’s demand.

Futures in Tokyo declined as much as 2.1 percent after climbing 3 percent yesterday, nearing a two-week high of 286.7 yen reached on June 16. Prices gained after China signaled it will unshackle the yuan’s fixed rate to the dollar, stoking speculation that the world’s largest consumer may boost imports.

“The good news from the yuan flexibility has faded as it lacked support from Wall Street,” said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co.

Rubber for November-delivery dropped as much as 5.8 yen to 276.8 yen per kilogram ($3,039 a metric ton) before trading at 278.5 yen on the Tokyo Commodity Exchange at 11:45 a.m.

The November-delivery contract on the Shanghai Futures Exchange declined 0.7 percent to 21,535 yuan ($3,162) a ton. Yesterday, the price climbed to 22,200 yuan, the highest level since June 3.

China, the world’s largest auto market, is the biggest user of natural rubber. The nation may boost gross imports of the raw material to 1.68 million tons this year from 1.59 million in 2009, according to a May report from the Association of Natural Rubber Producing Countries.

Oil Falls

“The market is in correction mode after sharp gains yesterday,” said Kazunori Kokubo, general manager for International Business Department at Yutaka Shoji Ltd. “Oil is also down, driving the rubber market lower.”

Crude oil declined for the first time in three days as optimism faded that China’s plan to add more flexibility in the yuan’s fixed exchange rate would strengthen the global economic recovery. A drop in crude oil cuts the appetite for rubber, used to make tires.

Increasing supply from Thailand added pressure to the rubber market, Chaiwat said from Bangkok. An average of 200 tons of ribbed smoked sheet RSS-3 rubber a day is available in the market this month, compared with slightly more than 100 tons a day in May, he said.

Global rubber output may total 9.7 million to 10.2 million tons this year as drought and heavy rainfall in key producing countries including Thailand and Indonesia damage supply, Stephen Evans, the secretary-general of the International Rubber Study Group, said in an interview last week. That compares with the group’s forecast range of 10.1 million to 10.6 million tons on March 17.

Demand will probably increase by 4.4 percent this year to 9.8 million tons, based on the assumption that the economic recovery will slow, Evans said. The group forecast 10.2 million tons in March.

(bloomberg.com)





Toyota Affiliate Denso Says Chinese Parts Factory Is Shuttered by Strike
Posted: 21 Jun 2010 10:51 PM PDT
Toyota Motor Corp. was hit by at least the third strike among its suppliers in China as widening labor unrest continued to disrupt Japanese manufacturers’ output in the world’s biggest auto market.

Workers at a venture of Denso Corp., Japan’s biggest auto- parts maker, walked out yesterday, shutting the plant in Guangzhou, Guangdong province, Toshihiro Nishiwaki, a spokesman for the Aichi, Japan-based company, said by phone today. The parts maker is in talks with the employees, who are demanding higher pay and improved benefits, he said.

Labor unrest in China is spreading to Toyota after employees at suppliers to Honda Motor Co. agreed to return to work with promises of higher pay. Toyota closed a factory in Tianjin on June 18 because of a strike at supplier Toyoda Gosei Co. in the northern Chinese city, said Mieko Iwasaki, a spokeswoman for the carmaker.

“So far, at this stage, the strikes are occurring at Japanese suppliers,” which pay about half the wage level of European and American companies, said Lin Huaibin, an analyst in Shanghai at consulting company IHS Global Insight. “We could see unrest spread to Korean and Taiwanese makers.”

Denso is about 23 percent owned by Toyota, the world’s largest carmaker, according to data compiled by Bloomberg.

Toyota said it’s unclear whether the strike will impact production at the carmaker’s ventures in Guangzhou and Tianjin, said Niu Yu, a Beijing-based spokesman for the carmaker. Shen Meihua, Denso’s Beijing-based spokeswoman, wasn’t immediately available for comment.

Six Strikes

Toyota fell 0.6 percent to 3,275 yen as of 1:52 p.m. in Tokyo trading, while Denso dropped 1.4 percent.

Denso Guangzhou Nansha Co., the joint venture in Guangzhou, manufactures and supplies fuel injection systems for customers including Toyota. The venture employs about 1,100 workers, according to a Denso company report.

Suppliers to Toyota and Honda agreed to raise wages as at least six previous strikes broke out at their Chinese factories in the past month, disrupting their production in the world’s largest auto market.

Toyota affiliate Toyoda Gosei Co. ended a strike on June 19. Workers at another Toyota supplier, Tianjin Star Light Rubber and Plastic Co., also walked out briefly on June 15 before the dispute was settled when the company offered a pay increase.

Pay Increases

Honda agreed last month to raise pay 24 percent for workers at a parts plant in Foshan after a strike shut down all four of its China car factories. Another Honda parts supplier in Foshan, Guangdong, was shut June 7 to June 10 by a walkout.

More than 20 Chinese provinces and cities, including the manufacturing hub Shenzhen, raised minimum wages this year to help companies recruit workers and to boost domestic consumption, the city government said this month.

Higher investment and improved wages in western China are deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong in the south, said David Abrahamson, project manager at the China Center for Labor and Environment.

Workers say the pay increases are necessary to help keep pace with the rising cost of living in the world’s most populous nation. Inflation accelerated to an annual pace of 3.1 percent in May, the biggest increase in 19 months. Property prices in May jumped 12.4 percent across 70 cities from a year earlier, the government said June 10.

(bloomberg.com)





Rubber shows its elasticity as market prices bounce about
Posted: 21 Jun 2010 10:49 PM PDT
By Daryl Guppy

BEIJING, June 22 (Xinhaunet) -- Every day thousands of new cars hit the roads in China and they all travel on rubber tires. The four wheels on your car, or the 14 wheels on the trucks hurtling between Beijing and Shandong and beyond are the most obvious evidence of the importance of the rubber industry.

This increasing demand is distorting rubber pricing in the same way that other commodity prices are also distorted. The price behavior moves beyond the simple relationship between supply and demand and is influenced by derivative price behavior.

The basics of this market are simple economics. Rubber is extracted from trees using methods, which have not changed significantly in the last 100 years.

It's labor intensive and suitable for small farmers and larger plantations. When demand is high there is a push to increase the cultivation area for rubber.

This supply lags demand because it takes around 7 years before a rubber tree starts to produce rubber but the tree continues production for around 25 years.

The alternative to natural rubber is synthetic rubber, which is a by-product of the oil industry. When oil prices are high the demand for cheaper natural rubber increases.

When oil prices are low synthetic rubber becomes cheaper and the demand for natural rubber falls. Traditionally the analysis of future rubber price movements has been closely tied to the future price of oil.

At the recent ASEAN Rubber Conference in Malaysia I examined the three features that dominate the rubber 2010 outlook. The first feature is market and trend volatility and trend divergence. The second is currency volatility.

The third is the recent confirmation of a head and shoulders pattern in the Japanese Tokyo Commodity Exchange rubber market. This pattern is a very reliable indication of significant downtrend pressure. The first two features affect many commodity prices.

Combined, they have a substantial impact on the price objectives for rubber. They also have a very large impact on the stability and continuity of the trend. Trend instability is a feature of global financial and commodity markets after the global financial crisis.

The first feature is the divergence in price trend behavior between oil and rubber. The rubber price has continued to move strongly upwards at a time when the oil price remained relatively stable.

This is an unsustainable bubble and it leads to longer term price corrections in the rubber price as the normal oil and rubber price relationship is re-established.

This bubble is influenced by the second feature, the currency volatility in the dollar index. In the past year the behavior of the rubber price closely follows the behavior of the dollar index.

This is a new behavioral relationship. The recent trend in the dollar index is defined with a parabolic curve, which suggests a significant correction will develop. This dollar index volatility transfers to the rubber pricing. The third feature is the recent confirmation of the strong head and shoulder pattern in the Japanese rubber market. This supports the bubble analysis derived from the first two features.

The head and shoulder pattern is not as strong in the Shanghai Rubber Futures market but it gives a downside target near 19,200 yuan. The pattern is invalidated with a move above 24,500 yuan.

Commodity pricing behavior is no longer a simple matter of seasonal supply and demand. Commodity investment funds have moved into this area. They are using a variety of financial methods and derivatives to 'invest' in commodities by using futures on a long-term basis.

The development of commodity funds that use exchanged traded notes based on holding futures positions for long-term investment has an impact on the market.

This reduces the efficiency of the commodity futures markets by reducing day-to-day liquidity.

This lack of liquidity helps to create price bubbles that are not related to underlying demand and supply of the commodity.

These pricing anomalies are further exaggerated by currency volatility. Commodity traders need to develop currency-hedging skills to manage the new commodity trend instability.

The author is a well-known international financial technical analysis expert.

(news.xinhuanet.com)





Firm expands Cambodian rubber plantations
Posted: 21 Jun 2010 10:47 PM PDT
HA NOI —The Dong Nai and Dong Phu companies under the Viet Nam Rubber Group (VRG) unveiled a new phase of rubber plantations in Sombo District of Kratie Province in Cambodia last Saturday.

The move is part of VRG's plan to grow 100,000ha of rubber trees in Cambodia by 2012.

VRG Chairman Le Quang Thung said the group's investment in Cambodia had not only yielded profit but also brought social benefits. The project has so far provided jobs to over 2,000 Cambodian workers at the rubber plantations.

Senior Minister of the Cambodia Ministry of Land Management, Urban Planning and Construction Im Chhun Lim said that the VRG had contributed to job generation and poverty reduction in Cambodia.

The two companies have been licensed to grow rubber trees on 16,000ha of land in Sombo District.

In the 2008-09 crop, they planted over 2,000ha and plan to cultivate an additional 2,000ha in 2010.

The VRG said it planned to invest $55 million in growing an additional 16,000ha of rubber trees in five Cambodian provinces this year, including 8,900ha in Kampong Thom, 7,500ha in Kratie, 1,500ha in Ratanakiri, 1,100ha in Stung Treng, and 1,000ha in Preah Vihear.

The plantations are expected to begin producing latex in 2017 with a total output of 150,000 tonnes, to be increased to 250,000 tonnes in 2020.

(vietnamnews.vnagency.com.vn)