What is driving record high rubber prices?

What is driving record high rubber prices?
TUESDAY, FEBRUARY 15, 2011
BANGKOK, Feb 15 - Rubber futures prices in Tokyo and Shanghai surged to a lifetime high this year and are likely to rise further on speculative buying and seasonal tight supply.
Benchmark rubber on the Tokyo Commodity Exchange <0#JRU:> for July delivery reached a new record high of 522.5 yen per kg on Tuesday. The most-active May rubber contract on Shanghai's exchange hit a record 43,500 yuan per tonne on Feb 9.
Strong futures are boosting physical prices, lifting the benchmark Thai RSS3 contract to a record $6.40 per kg on Monday.
Here are questions and answers on factors likely to influence rubber prices and the market.
WHAT IS HAPPENING WITH DEMAND AND SUPPLY?
Rubber prices began rising sharply in November when floods hit Thailand, the world's biggest rubber producer and exporter, disrupting tapping and destroying plantations.
After the floods receded, Thailand's southern region, which contributes 90 percent of the country's annual rubber production of around 3.2 million tonnes, was hit by unseasonal rains that disrupted tapping in December and January, cutting production.
Rains also affected plantations in Malaysia, the world's third-biggest producer, cutting supply, traders said.
This has coincided with a dry season in Indonesia, the world's second-biggest producer and exporter, further reducing supplies.
Output is likely to fall sharply from the end of February, when the dry season reduces latex output. Rubber trees have already started to shed leaves and are due to stop producing latex completely by March and April, when farmers will stop tapping and supply will probably drop as much as 80 percent.
Demand, however, is strong, especially from China, the world's biggest rubber consumer, due mostly to growth in its auto industries. China auto sales rose 33 percent in 2010, securing its position as the world's top market.
Despite record high offered prices, buying hasn't abated, encouraging producers to quote at even higher prices.
Benchmark Thai RSS3 was offered at the record high of $6.40 per kg.
IS SPECULATIVE BUYING PICKING UP?
Heavy speculative futures buying is also driving up physical prices, say industry officials and analysts, noting the U.S. Federal Reserve's $600 billion bond purchase programme has funneled cheap money into the rubber market, led by investors betting on further price rises who seek to take profits later.
"Funds have been pouring money into several commodities since late 2010, in particular rubber as they saw opportunities to capitalise on high prices at a time that supply is getting lower," said Yium Tavarolit, an economist at the International Rubber Consortium Ltd .
IS THERE HOARDING?
As supplies dwindle ahead of the dry season, local traders and producers have become reluctant to sell. Many want to keep rubber sheet in stock and wait to sell when prices move higher.
"They know that prices will rise eventually in March and April when supplies are due to fall sharply as rubber trees will stop producing latex," said a trader in Hat Yai, a southern Thai city and major rubber centre near the Malaysian border.




NMCE Rubber recovers on fresh buying
TUESDAY, FEBRUARY 15, 2011

NMCE rubber futures traded higher on extending fresh buying after witnessing huge losses last week. Futures started the day on positive note on active buying spot market activity also supported the upside.
TOCOM futures also traded higher and made a new high of ¥ 520 per Kg. and settled at ¥ 518.60 per Kg on bullish sentiments. Good recovery in spot prices also supported the prices at lower levels and futures traded on positive note.
The rubber futures are projected to trade positive on extending fresh buying on Tuesday. TOCOM rubber July futures are also trading up at ¥ 520.90 per Kg. after making a new high of ¥ 522.50 per Kg. on active buying interest. Emerging demand from tyre industry is also supporting the prices at domestic spot market. Thus on cues from above stated factors NMCE rubber futures are projected to trade higher today.
Factors to Watch For
Natural-rubber inventories monitored by the Shanghai Futures Exchange is reported around at 58,058 tons, which is down by 62 % from last year’s highest inventory levels of 151,832 tons
According to Rubber Research Institute of Thailand, The physical price of natural rubber in Thailand, the world’s largest exporter, extended gains to an all-time high of 193.30 baht ($6.28) per kilogram on Feb. 11
According to the Association of Natural Rubber Producing Countries, Natural-rubber consumption in China and India may rise 9 percent to 3.6 million tons this year and 5.2 percent to 991,000 tons respectively
Chinese rubber imports have come down by 14% to 150,000 tons due to prevailing higher prices in international market
According to China Association of Automobile Manufacturers, Car-sales growth in China will be around 10 to 15 percent this year Total auto sales, which include cars, trucks and buses, jumped 32 percent last year to 18.06 million
DERIVATIVE ANALYSIS
Indian Futures (NMCE)
The NMCE February contract, prices, volumes and open interest all are rising. Market is attracting larger numbers of traders willing to open positions from the long side and hold them. Traders are more confident that prices will continue to climb in favor of a working long. This scenario is good clues that uptrend are secure & that the trend may continue further for a period of time.
Japan Futures (TOCOM)
The TOCOM active June contract, prices, open interest are rising while volumes are falling. Market is attracting late buyers & early shorts; market is vulnerable to a sharp correction but likely that that correction will be bought creating a buy point for uptrend.
Shanghai Futures (SHFE)
The SHFE active June contract, prices and volumes are falling while open interest is rising. It is a good indication that a sharp rally against downtrend will develop creating a sell point for downtrend.




Rubber bounces to record high
TUESDAY, FEBRUARY 15, 2011

Rubber advanced to a record amid speculation that China may increase purchases to replenish stockpiles before the low-production period begins in major growing areas in Thailand. The Thai cash price also climbed to an all-time high.
The July-delivery contract climbed as much as 1.2 percent to 520 yen a kilogram ($6,247 a ton) before settling at 518.7 yen on the Tokyo Commodity Exchange. The most-active contract has advanced 25 percent this year, extending the 50 percent rally in 2010.
Natural-rubber inventories monitored by the Shanghai Futures Exchange declined 615 tons to 58,058 tons, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin, the bourse said on Friday.



Tokyo rubber futures hit record high
TUESDAY, FEBRUARY 15, 2011

Tokyo (february 15, 2011) : benchmark tokyo rubber futures hit a record high on monday as concerns over tight supply continued to lend support, while a weaker yen also boosted sentiment. the key tokyo commodity exchange rubbercontract for july delivery rose as high as 520 yen, the highest ever for any benchmark, before settling at 518.7 yen per kg, up 4.8 yen, or 0.9 percent, from thursday's settlement of 513.9 yen.
japanese financial markets were closed on friday for a national holiday. traders said speculative buying due to concerns about tight supply is expected to drive up prices. the price of benchmark thai rss3 rose to a new record again on monday. the most active shanghai rubber futures for may delivery closed at 42,860 yuan ($6,503) per tonne, up 175 yuan from friday's close of 42,685 yuan. they marked a record high of 43,500 yuan last week. volume stood at 444,090 lots. great wall motor co ltd, china's largest sport-utility vehicle maker, said on monday it expected its profit for 2010 to rise more than 50 percent from the previous year.




Sheet rubber up on fresh buying, short-covering


KOTTAYAM, FEB. 14:
Physical rubber prices firmed up on Monday. According to observers, some tyre companies also bought in the market as it gained strength from global cues and a recovery in domestic futures. The prices may touch new highs in the days ahead, they said.
Sheet rubber improved to Rs 238 (Rs 236) a kg on fresh buying and short-covering. The grade increased to Rs 237.5 (Rs 236.5) a kg both at Kottayam and Kochi, according to the Rubber Board.
The shortage of skilled labour has seriously affected the medium-rubber holdings in the country, said Mr N. Radhakrishnan, Advisor to the Cochin Rubber Merchants Association. While small growers can take recourse to in-house tapping skills, large estates can depend on captive labour. It is the medium holdings that often face acute labour shortage. The growth in the number of rubber trees planted and number of trees to be tapped might not reflect an increase in production unless the problem of labour shortage is resolved, he continued.
In futures, the February series moved up to Rs 237 a kg (Rs 235.21), March to Rs 243.98 a kg (Rs 239.85), April to Rs 253.3 a kg (Rs 248.92) and May to Rs 257.5 (Rs 252.69) a kg for RSS-4 on the National Multi-Commodity Exchange.
RSS-3 flared up at its February futures to ¥527 (Rs 287.69) from ¥519 a kg during the day session, but then slipped to ¥526.6 (Rs 287.51) in the night session on Tokyo Commodity Exchange. The grade (spot) closed firm at Rs 288.73 (Rs 286.94) a kg at Bangkok.
The spot rubber rates were (Rs/kg): RSS-4 — 238 (236); RSS-5 — 228 (226.5); ungraded — 224 (221); ISNR-20 — 235 (232); and latex 60 per cent — 149 (149).