Rubber prices projected to increase even more
Rubber prices projected to increase even more
TOKYO (Reuter): Soaring rubber prices on the Tokyo Commodity Exchange (Tocom) are expected to climb even higher due to persisting supply tightness caused by torrential rain delaying rubber output in producing countries, traders said yesterday.
"Prices have upward potential as heavy rainfall and floods in producing countries have brought the rubber tapping process to a halt," a trader with a major trading house said.
More than 90 percent of the world's rubber is produced in Southeast Asia. Malaysia, Indonesia and Thailand account for about 75 percent of global supplies.
Production
Production in Southeast Asia is normally high during the third and fourth quarters of the calendar year.
But rains across the region are slashing production as tappers have stayed out of plantations because the rainwater would mix with the collected latex, reducing its value.
Analysts said the Tocom benchmark is seen targeting 183.10 yen per kg, the highest price so far this year, hit in March. Tocom benchmark April closed at 168.1 on Tuesday.
"Volatile trade is likely to continue, with the underlying tone still bullish," said Hiroshi Munakata, an analyst with commodities brokerage house Asahi Trust Co Ltd.
"Supply tightness and technical factors are expected to support Tokyo prices, but caution is needed as plentiful supplies could start entering the market once the rains stop," he said.
The immediate focus is on expiry of the spot month on Friday, he said.
Most traders expect prices to stay firm on Friday in view of the need for many private investors to cover short positions. A moderate amount of deliveries is expected, they said. Another commodity brokerage house analyst said he expected prices to stay high until the December expiry of the spot contract.
"If trading houses decide to make huge deliveries in December, encouraged by high Tocom prices compared with physical prices in rubber producing countries, the market could nose-dive," the second analyst said.
Supply tightness, coupled with technical factors, has driven Tocom rubber prices on an upward trend since August.
The spot November contract closed at 172.6 yen per kg on Tuesday, up 65.8 yen from a low of 106.8 yen on Aug. 1.
A tightening of domestic supplies is evident from falling domestic rubber stocks amid good tire output, traders said.
Stocks in private warehouses at ports dwindled to 23,133 tons on November 10 from 25,652 tons as of September 30, according to the Rubber Trade Association of Japan.
The amount of rubber used by Japanese tire makers to make tires and tire tubes totaled 765,668 tons in the first nine months of 1995, 14 percent higher than the same period a year earlier, the Japan Automobile Tire Manufacturers' Association Inc said.
Over 60 percent of domestic rubber demand is for tires and tire tubes.