Rubber Sets Five-Month High as Monetary Easing Raises Commodities Appeal

Rubber Sets Five-Month High as Monetary Easing Raises Commodities Appeal
Posted: 05 Oct 2010 10:09 PM PDT
Rubber reached a five-month high after the Bank of Japan eased its monetary policy, raising speculation other central banks may follow suit and boosting the appeal of commodities as an inflation hedge.

The March-delivery contract gained as much as 1.6 percent to 322.6 yen per kilogram ($3,878 a metric ton), the highest level since April 26, before trading at 321.7 yen on the Tokyo Commodity Exchange at 11:32 a.m.

Japan’s central bank yesterday cut its benchmark overnight interest rate for the first time since 2008 and pledged to hold it at “virtually zero” until officials foresee a sustained end to deflation. The bank also adopted a 5 trillion yen program aimed at lowering long-term borrowing costs and the premiums on corporate debt. Gold rallied to a record following the action, while the Reuters/Jefferies CRB Index of raw materials increased 1.6 percent yesterday, the biggest gain since Sept. 1.

“Investor appetite for commodities is increasing as central banks in advanced nations are moving to loosen their monetary policy further to sustain economic recovery,” said Hisaaki Tasaka, an analyst at Tokyo-based broker ACE Koeki Co. “Rubber was bought in tandem with metals and oil.”

The renewed push for monetary policy easing comes as the International Monetary Fund warns growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week.

Stimulus Plans

The unexpected action by the Japanese central bank follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials may consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those holding fire on interest-rate increases.

“The Bank of Japan is at the head of the pack,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $370 billion in assets. “It looks like a lot of others will follow.”

Rubber futures also increased as the physical market in Thailand, the largest producer and exporter, extended gains on tight supply, Tasaka at ACE Koeki said.

The benchmark Thai rubber price gained 0.2 percent to 110.65 baht ($3.69) a kilogram yesterday, according to the Rubber Research Institute of Thailand. A lack of supply continued to drive prices higher, the institute said.

The Shanghai rubber market is closed as China marks National Day holidays from Oct. 1 to Oct. 7.

Natural-rubber inventories monitored by the bourse expanded 4,680 tons to 31,580 tons, based on a survey of 10 warehouses, the exchange said Sept. 30.

(bloomberg.com)



Rubber consumption up, imports fall
Kochi, Oct 6

While consumption of natural rubber has been falling in North America during the last decade, demand and consumption has been growing rapidly across Asian countries, especially in China and India.

Addressing the Annual Rubber Conference 2010, organised by the Association of Natural Rubber Producing Countries Rubber (ANRPC), Prof K.V. Thomas, Minister of State for Agriculture and Consumer Affairs, said that rubber remains a vital component in India's commercial agriculture accounting for 38 per cent of the total area under plantation crops.

Demand slow down

However, there has been a slow down in demand across major Asian countries, including India, during the current year.

In India, which accounted for nearly 10 per cent of the global demand for natural rubber during 2009, consumption growth slowed down from 12.2 per cent in the first quarter of 2010 to 6.9 per cent in second quarter and further to an estimated one per cent in the third quarter on a year-to-year basis, the ANRPC reported.

This was also accompanied by a major plunge in import of natural rubber. Rubber imports which increased 124 per cent in the first quarter fell to 25 per cent in the second quarter and further by another 38 per cent in the third quarter.

Global output

The ANRPC said that while imports posted sharp negative growth, consumption merely slowed down and concluded that major consuming countries such as China, India and Malaysia have largely relied on domestically available stock of rubber rather than sourcing it from abroad.

The global rubber production is expected to grow by 6.3 per cent. However, this can be subject to further downward revision as negative factors are likely to stifle production from Indonesia, Thailand and some other Asian countries. And Thailand is the largest producer accounting for 33 per cent of the global supplies.

In India, the output growth has been more or less uniform across the first three quarters. The most significant difference has been the 11.6 per cent growth expected for July mainly on account of less rainy days reported in the month.

For the year as a whole, Indian rubber production is expected to grow by 7.2 per cent to 8.79 lakh tonnes (8.20 lakh tonnes).

Plantations

But there are several constraints before the Indian rubber production. The new areas coming under rubber plantations are in non-traditional low yielding areas which could impair future productivity.

More alarmingly, the share of aged trees which are over 21 years old is poised to increase from 19 per cent level in 1999 to 55 per cent level in 2011.

Also, severe shortage of skilled tappers and high wages has been an incessant problem in the market. The ANRPC also pointed to the very high Indian yield/hectare which has very high yielding clones. This leaves very little space for further improvement in productivity.



Spot rubber recovers on short covering


Kottayam, Oct 6

Domestic rubber prices recovered on Wednesday. The spot market has been suffering from acute short supplies on adverse weather conditions. Moderate gains on the National Multi Commodity Exchange (NMCE) and the predictions regarding continuous rains till the weekend have triggered short covering in major grades, and prices moved up sharply even amidst low volumes. Sheet rubber improved to Rs 174 from Rs 172 a kg mainly on covering purchases. The grade closed firm at Rs 172.5 (171.5) a kg both at Kottayam and Kochi according to the Rubber Board.

Futures gain

In futures, the October series flared up to Rs 178.8 (175.91), November to Rs 180.9 (177.85), December to Rs 183.75 (180.8) and January to Rs 187.18 (183.75) a kg on NMCE. The volumes totalled 5,206 lots, and open interest 4,259 lots. The turnover was Rs 93.94 crores. RSS 3 increased at its October series to ¥308.9 (Rs 165.3) from ¥302.7 a kg during the day session but slipped to ¥308 (Rs 164.84) during the night session on the Tokyo Commodity Exchange. RSS 3 (spot) recovered to Rs 164.19 (163.13) a kg at Bangkok.

Spot rates were (Rs/kg): RSS-4: 174 (172); RSS-5: 168 (167); ungraded: 164.5 (163); ISNR 20: 169 (168) and latex 60 per cent: 116 (116).