Rubber Drops as Global Glut May Climb Amid China Demand Concern

Dec 25, 2013 2:49 am ET

Dec. 25 (Bloomberg) -- Rubber dropped, paring an earlier advance, amid concern that demand in China may slow while a global surplus of the commodity used in tires widens.

The contract for delivery in June on the Tokyo Commodity Exchange dropped to close at 272.3 yen a kilogram ($2,607 a metric ton), retreating from a high of 277.8. Futures have dropped 10 percent this year.

A global glut of natural rubber will probably climb to 366,000 tons next year from an estimated 336,000 tons this year as production increases at a faster pace than consumption, according to The Rubber Economist Ltd.

“An increasing supply surplus is negative to the market, prompting funds to sell rubber ahead of year-end holidays,” Ryuta Imazeki, analyst at Okachi & Co., said by phone from Tokyo. Higher financing costs in China also raised concern that demand in the biggest consumer of rubber may weaken, he said.

China’s central bank conducted its first reverse-repurchase operation in three weeks yesterday, stepping up efforts to provide lenders with cash after the biggest surge in borrowing costs since 2011.

Rubber for May delivery on the Shanghai Futures Exchange gained 0.6 percent to close at 18,415 yuan ($3,033) a ton. Thai rubber free-on-board remained unchanged at 83.45 baht ($2.55) a kilogram today, according to the Rubber Research Institute of Thailand.

--Editors: Brett Miller, Ovais Subhani