Chinese speculators ping global rubber prices to 5-year high

Rubber tree farmers row a boat in floodwaters in his rubber plantation in Nakhon Si Thammarat Province

Rubber tree farmers row a boat in floodwaters in his rubber plantation in Nakhon Si Thammarat Province

Published Feb 6, 2017

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Tokyo - First, Chinese speculators came for

coking coal and iron ore, catapulting markets into orbit. Now,

they're carpetbagging a different commodity, pushing it to its

fastest price rise in more than a quarter of a century - rubber.

Traders say Chinese investors are punting on global rubber

demand surging on revived growth in China stoking the auto

sector, allied with hope a President Trump stimulus will stoke

the U.S. economy. The world's biggest tyre maker, Bridgestone

, has already warned it may have to lift product prices.

These bets are likely to continue once China is fully back

in business after the Lunar New Year break, traders say. They

come just as output in key Southeast Asia producer countries

enters a seasonal drop - exacerbated by recent floods in

Thailand - and have made rubber an even hotter property than

top-demand commodities like lead and steel.

Asia benchmark rubber futures at the Tokyo Commodity

Exchange (TOCOM) hit their highest levels in more than

five years last week and climbed 26 percent in January before

giving up some gains during the Chinese New Year holiday - their

biggest monthly leap since at least 1990. That's already stoked

interest in new production in places like India.

"There was a round of speculation on rubber in China in

January," said Quan Shuwen, an analyst at the Shanghai office of

Japanese brokerage Okachi. "Supplies are quite tight, demand

from downstream enterprises is gradually getting stronger in

China, which will very likely further push up prices."

Over the past four months, rubber prices have more than

doubled in a wild swing propelled by China's cash-rich

investors, underlining their ability to move markets after

similar surges in commodities like coking coal and iron ore.

While uncertainties shroud what President Trump plans to do

to boost the U.S. economy, the bet isn't a blind wager as far as

China is concerned.

Beijing recently renewed incentives to boost demand for

smaller, environment-friendly cars in what is the world's

biggest auto market. It also introduced tighter rules on how

much freight trucks can carry, a move likely to increase demand

for trucks - and their tyres.

Prices high

The rally has been further fuelled by concerns over output

in Thailand, the world's biggest rubber producer. After flash

floods that affected the country's main rubber growing region,

the Rubber Authority of Thailand estimated it would cut the

country's rubber output in 2017 by 7.6 percent.

Thai rubber exporters say they have enough of the commodity

stockpiled to ensure only minimal disruption to scheduled

shipments. Still supply concerns linger, dealers said, as the

industry moves into its 'wintering season' - the dry winter

season from February to May in Thailand, Malaysia and Indonesia

when output drops.

"With wintering season approaching and healthy tyre demand

in China, prices will likely stay at high levels until March or

April," said Shinichi Kato, president of rubber material dealer

Shinichi Kato Office.

The spike in rubber prices hasn't gone unnoticed by farmers

elsewhere in Asia.

In India, industry officials told Reuters rubber output is

likely to jump 15 percent in 2017-2018, its highest in four

years, as the higher prices prompt farmers to start tapping

trees they had previously abandoned.

The rally, however, is bad news for tyre makers as it eats

into profits and trims margins - a hit that tyre makers in Japan

and South Korea warn that they may pass on to customers.

"It's our basic policy to raise tyre prices to reflect

higher raw material costs, but decisions will be made after

taking market conditions, including rivals' moves, into

account," said Fusamaro Iijima, a Bridgestone spokesman.

At a major Korean tyre maker, a person with knowledge of the

matter - speaking on condition of anonymity - said raw materials

price increases are typically reflected in end-product

prices two or three months down the line.

REUTERS

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