Rubber Drops for Second Day as Yen Rises, Output Worries Ease

March 03, 2010, 2:21 AM EST

By Supunnabul Suwannakij

March 3 (Bloomberg) -- Rubber dropped for a second day as a stronger Japanese currency reduced the appeal of yen-denominated contracts and increased output during the low-production season damped interest.

Futures in Tokyo fell as much as 1.1 percent, extending a 2.4 percent loss yesterday. Prices have gained for the past three weeks after reaching this year’s peak of 306 yen per kilogram ($3,450 a metric ton) on Jan. 15, which was the highest level since September 2008.

The yen strengthened for a second day against the dollar on speculation companies such as Toyota Motor Corp. and Sony Corp. were taking advantage of a rule change that went into effect last year waiving taxes on repatriated profits. The Japanese currency gained to 88.48 versus the dollar, the highest level since Dec. 14, from 88.85 yesterday in New York.

The stronger yen is a key factor driving the market lower, Roka Komiya, trader at Marubeni Corp. said by phone from Tokyo. An increase in natural rubber production during wintering season also “puts pressure on prices,” Komiya said.

Rubber for August delivery, the most-active contract, lost as much as 3.1 yen to 287.3 yen before settling at 289.7 yen on the Tokyo Commodity Exchange.

During wintering, or the low production season between February and April, rubber trees shed their leaves and latex production slows.

Natural rubber output from key suppliers during the low- production period will improve this year, boosting exports, the Association of Natural Rubber Producing Countries said in its February newsletter. The group represents countries accounting for 94 percent of global production.

Vietnam Output

Production in Vietnam, the third-largest exporter, during the wintering season will probably grow 14 percent from a year earlier to 20,600 tons, helping raise total output this year by 6.4 percent to 770,000 tons, the monthly report said. Exports will rise 6.6 percent from last year, it forecast.

In Malaysia, the fourth-biggest exporter, low-season output will surge 43 percent to 243,000 tons, the group said. India’s output during the season may rise 4.1 percent to 154,000 tons, and total output this year will climb to 913,000 tons, compared with 853,000 tons forecast earlier, the group said.

Natural rubber supply in Thailand, the largest producer and exporter, had a “robust” 23.8 percent annualized growth in January on favorable weather, it said.

“Improved output during the wintering season dampens the market sentiment in the near term,” Chaiwat Muenmee, analyst at DS Futures Co., said by phone from Bangkok.

In the cash market, Thai rubber prices declined as buyers slowed purchases after futures slid and yen strengthened, the Rubber Research Institute of Thailand said on its website today.

The auctioned price of unsmoked sheets fell 1.7 percent to 99.15 baht ($3.03) per kilogram. Ribbed smoked sheets lost 1.2 percent to 102.99 baht a kilogram, according to the institute.

May-delivery rubber on the Shanghai Futures Exchange fell as much as 1.4 percent to 24,135 yuan ($3,536) a ton, before settling at 24,285 yuan.

(businessweek.com)