Rubber to rise on Thai output reduction

Rubber is nearing the bottom of a bear market that started in January and is poised to rise after its slump to a five-year low, triggered by output cuts in Thailand, according to a survey of 15 analysts.

Futures on the Tokyo Commodity Exchange, down 64% from a record in 2011, will climb to 205 yen a kilogram ($1,910 a metric ton) by the end of the year, according to the median response from the analysts based in Tokyo, Singapore and Bangkok surveyed by Bloomberg News. That's 7% higher than prices on Tocom today of 191.5 yen.

Rubber traded in Tokyo, Shanghai and Thailand all slid this month to the lowest levels since 2009. Growers in Thailand, the biggest producer, have begun felling older trees to cut supply and will reduce tapping after record-high prices three years ago spurred farmers to expand plantations.

"Falling prices will accelerate Thai producers reducing output, raising the prospect that the surplus in the global market may shrink," said Takaki Shigemoto, an analyst at JSC Corp, a research company in Tokyo. "Demand is healthy as global auto sales are set to reach a record high this year, boosting tyre production."

The Thai government will promote cutting down trees to trim production and will use natural rubber stockpiles for road and flood prevention projects to run down its surplus, Minister of Agriculture Petipong Puengbun Na Ayudhya said in a statement last week.

Output from the country may drop as much as 30% because of falling prices, fewer tapping days, labour shortages and heavy rains disrupting plantation work, said president of the Rubber Holders Cooperatives Federation of Thailand, Perk Lertwangpong.

Suffering

"Rubber growers cannot survive with prices at this level as a price slump reduces monthly incomes by half," Perk said in a phone interview.

"We've been suffering from a price slump for a long time," he said.

The global oversupply will shrink to 202,000 metric tonnes in 2015, down 46% from this year, the Singapore-based International Rubber Study Group said last month.

China, the biggest user of the commodity, consumed 2.90 million tonnes of natural rubber in the eight months through August, up 6% from the corresponding period last year, according to the Association of Natural Rubber Producing Countries.

Chinese demand is forecast to grow 7.8% to 4.54 million tonnes this year, the group said this month.

Falling prices could spur a switch by users in China away from compound rubber, a cheaper alternative made from a mixture of natural and synthetic materials.

Tyre demand

"Prices of natural rubber in China are falling to as low as those for compound rubber," said Gu Jiong, analyst at Yutaka Shoji Co, a broker in Tokyo. "If this situation continues, demand will probably shift from compound to natural rubber."

Demand for rubber used in tyres will increase as automobile production rises. Global sales of light vehicles are set to climb 4% to a record 90.5 million units next year, according to LMC Automotive Ltd, a research company in Oxford, England. Sales across Asia will expand 5.4% in 2015, the researcher said last month.

Lower rubber prices are boosting earnings of tyre makers including Bridgestone Corp. and Goodyear Tire and Rubber Co, and reducing revenue for farmers from Ivory Coast to Vietnam and Thailand, the largest producer and exporter.

Tokyo-based Bridgestone, the world's largest tyre-maker, expects that low rubber prices will help raise its operating profits by 50 billion yen for the year through December 31, up from an earlier forecast of 5 billion yen, chief financial officer Akihiro Eto said.

Rubber fell into a bear market in January as inventories in Shanghai climbed to a nine-year high. Rubber is the biggest loser among major commodities this year.

Futures on the Tocom plunged 31% this year to settle at 190.2 yen on September 12. That's more than the 20% drop in corn, the worst-performing commodity among 22 tracked by the Bloomberg Commodity Index, which lost 3.5% over the same period. -

Courtesy Bangkok Post