Shanghai Rubber Hits Four-Year Low Dragging Down Tokyo Benchmark

Jan 07, 2014 3:23 am ET

Jan. 7 (Bloomberg) -- Rubber futures in Shanghai dropped to a four-year low, dragging down the benchmark contract in Tokyo, as Chinese tiremakers delayed restocking amid concern demand may wane in the world’s second-biggest economy.

Rubber for May delivery on the Shanghai Futures Exchange fell 2.5 percent to 16,815 yuan ($2,779) a metric ton, the lowest close since September 2009. On the Tokyo Commodity Exchange, the contract for June delivery fell 3.2 percent to 254.3 yen a kilogram ($2,434 a ton). Tokyo futures dropped 7.4 percent in the past two days, the most since July 2012.

An official report last week showed a non-manufacturing gauge fell to a four-month low in December, after two measures of factory output slid. China’s Cabinet imposed new controls on the multi-trillion-dollar shadow-banking industry with an order that targets off-the-books loans, three people familiar with the matter said.

“China’s money market has been tight since the new year and cash-strapped tiremakers seem cautious and are refraining from their usual restocking around this time,” said Chen Dong, an analyst at Baocheng Futures Co. in Hangzhou. “Rubber may decline further amid lack of physical demand and the general concern about the financial conditions.”

Stockpiles monitored by the Shanghai Futures Exchange rose 0.9 percent to 176,027 tons, the highest level since November 2004, data from the bourse showed last week.

“The sell-off in the Chinese market dragged down futures in Tokyo,” said Hideshi Matsunaga, an analyst at Evolution Japan Co., a broker in Tokyo.

The Cabinet order shows concern at the highest levels of government that shadow banking, estimated by JPMorgan Chase & Co. at 69 percent of China’s 2012 gross domestic product, may threaten the financial system’s stability.

In Thailand, the biggest producer of the commodity, rubber free-on-board fell 2.2 percent, the most since June, to 78.9 baht ($2.38) a kilogram today, according to the Rubber Research Institute of Thailand.

--With assistance from Feiwen Rong and Steven Yang in Beijing and Jun Luo in Shanghai. Editors: Jarrett Banks, Brett Miller