TOCOM Rubber Seen At 497.5 Yen/Kg By End-March

Tokyo rubber futures are likely to move higher this month because of seasonally tight supply and strong demand from the tyre industry, but prices won't hit the record highs seen in mid-February and may slip back in April.
A Reuters poll this week forecast the benchmark rubber contract on the Tokyo Commodity Exchange, currently August, would be at 497.5 yen ($0.608) per kg at the end of March.
That is 6.7 percent higher than the actual closing price of 466.4 yen at the end of February. It traded at around 475 yen on Thursday (Mar 3).
"TOCOM prices are likely to be supported by demand for cars spreading from big cities in China, while rubber-producing countries are in the dry season," said Hiroyuki Kikukawa of Nihon Unicom.
Car makers have been relying heavily on growth in emerging markets such as China, Brazil and India, but a rebound in sales in Europe and the United States has raised hopes that a recovery in the global economy may be sustainable.
The median forecast of 497.5 yen for the end of March was well below the record high of 535.7 yen per kg set in mid-February.
"Prices have risen too fast to a level that players think are not realistic and where the market is over bought," said a Malaysian trader.
Traders said they expected a period of correction, with both funds and operators in the rubber sector taking profits.
"I think they could take profits and stay away from the market for a while as it is too risky, because prices are very volatile," said a trader at Thailand's Hat Yai rubber centre.
Given that possibility, dealers and analysts forecast the benchmark contract could dip slightly to 485.0 yen per kg by the end of April.
"Prices could face a corrective phase, but they should still be supported by limited supply," an Indonesian trader said.
Thailand, Indonesia and Malaysia, the world's top three rubber producers, are in the dry season, when rubber trees stop producing latex, forcing farmers to halt tapping.
Physical rubber prices also surged to a record high in mid-February at $6.40 per kg and were expected to remain at firm levels until the dry season ends, normally by end-April.
Thai RSS3 was forecast to be at $6.15 per kg at the end of March, up from $6.00 at the end of February.
Malaysian SMR20 and Indonesian SIR20 were forecast to be at $5.63 and $5.46 per kg respectively at the end of March, up from around $5.39 at the end of February.
(Reuters, March 3, 2011)