Asian rubber held hostage by rupiah, new lows set

Asian rubber held hostage by rupiah, new lows set

SINGAPORE (Reuters): The Asian physical rubber market is held
hostage by Indonesia's weakening rupiah, with prices already at
lows not seen in more than three decades, prompting talk of
defaults by China, traders said on Monday.

Indonesia's SIR20 was seen last traded at 22 U.S. cents per
pound for July, FOB Palembang -- well below 50 U.S. cents per
kilo. This was below lows seen in March this year and in mid-
1999.

All traders were watching the rupiah, which was quoted at
11,850/11,900 to the dollar in early afternoon -- very close to
the critical 12,000 level hit on Friday for the first time since
late 1998 during the Asian economic crisis.

"The way the rupiah is going, we might see 20 cents (per
pound) level," said a rubber trader in Singapore. "There's
nothing very good at the moment."

Traders said low prices for SIR20 had lured in some tyre
makers to seal deals late last week, though their purchases were
not large enough to turn around the trend.

Instead, there was market talk Chinese buyers had defaulted on
some SIR20 contracts due to the sharp price falls since early
this year, some traders said.

"The expectation is that the off-take will still remain very
poor, particularly ahead of holidays (in the summer in the
northern hemisphere)," another trader said.

Asked about China, which helped prop up physical rubber prices
early this month, the trader said: "China has receded quite
significantly. You still see small parcels enquired, but I think
the vast majority of the requirement is already purchased."

Traders expected buyers to shift to Indonesia from Thailand
where a shortage in raw materials held up prices amid the
wintering, particularly for nearby positions.

Thai RSS3 sheets were seen offered at 58-59 U.S. cents per
kilo for June and 59-60 cents for July. Thai STR20 block rubber
was seen at around 55 cents for nearby positions.

Traders said it was difficult to buy May.

In Tokyo, the April RSS3 future expired at 65.5 yen per kilo
-- around 53.7 U.S. cents as the yen stood at around 122 to the
dollar -- with physical deliveries at 679 lots or 3,395 tons
after the largest-ever deliveries of 3,492 lots in March.

Traders said while individual speculators had finished
delivering inventories accumulated last year, nobody was keen on
taking deliveries at such high prices for exports to China.

This should slow down the decline in Japanese rubber
inventories, which stood at 48,461 tons on April 10 -- well below
the 16-year high of 79,594 tons seen in January, but still above
appropriate levels of around 35,000-40,000 tons.

Asked about China, a third trader at a Japanese house said:
"They're not interested in buying. But as far as RSS3 is
concerned, they haven't asked for shipment delays."