[06 Feb] Asian Rubber Falls 5.5% on Global Economy Concerns

Natural rubber futures in major bourses across Asia fell sharply Friday following overnight losses in crude oil due to concerns over the vulnerability of the global economic recovery.

Investors in Tokyo, Shanghai, Singapore and Bangkok scrambled to liquidate positions and cut losses as rubber prices tumbled in a broad-based sell-off.

Rubber futures on the Tokyo Commodity Exchange fell 5.5%, tracking crude oil's 5% drop overnight.

The benchmark Tocom July contract hit the first daily lower limit--a decline of Y10 a kilogram--and continued to fall when trading resumed after a brief halt to an intraday low of Y267.2/kg. The July contract settled Y14.9 lower at Y268.0/kg.

The contract recovered marginally during the night session to settle at Y269/kg.

"There are concerns that debt-related problems in European countries and a high unemployment rate in the U.S. may affect global economic growth and demand for natural rubber," a Tokyo-based trading executive said.

Close to 70% of world's natural rubber is used to make tires. Demand for tires hinges on the health of the global economy; it is linked to rubber demand through automobile sales and the volume of passengers and goods transported.

Investors have liquidated positions due to fears the debt-related problems faced by Greece, Spainand Portugal may snowball to other countries, said Avtar Sandu, manager for Asian commodities with Phillip Futures.

The weakening of the euro and the strengthening of dollar may lead to a shift in funds to currency trading from commodities, and this has prompted investors to take profits, he said.

Among other benchmark contracts across Asia, Shanghai May rubber slumped 4.8% to an intraday low of CNY22,000/ton, while Thai September RSS3 rubber on Agricultural Futures Exchange of Thailand fell 3.0% to THB98.85/kg; Sicom's March TSR20 rubber contract declined 3.5% to an intraday low of 290 U.S. cents/kg.

Sicom's March RSS3 futures were also lower at 296 cents/kg.

Even if physical demand isn't affected, the perception of a weak global economy has a psychological impact on investors, Sandu said.

The recent recall of cars by Toyota, the world's largest car maker, due to quality problems has also damped market sentiment.

"Toyota's demand for tires to make new cars may be affected until it settles issues relating to quality," a Bangkok-based executive at a commodities brokerage said.

Light, sweet crude for March delivery settled down $3.84, or 5%, at $73.14 a barrel Thursday on the New York Mercantile Exchange. It was the lowest settlement since Jan. 29 and the biggest one-day loss since July 29.

Asian physical rubber prices were also lower but many buyers kept to the sidelines expecting a further correction.

Some importers in China are using existing warehouse stocks, which are available at cheaper rates.

China's natural rubber inventories in warehouses recognized by Shanghai Futures Exchange fell 10% in week to Thursday to 128,306 tons.

In other news, Japan's natural rubber imports in 2009 fell 30% from a year earlier to 596,771 tons. Traders said it was mainly due to sluggish purchases during the first half of the year amid the global economic recession.

(Source: irco.biz)