Rubber set for bull run in China as exporters curb supply

Tokyo

RUBBER in China rose to an eight-month high and was poised to enter a bull market as shrinking inventories in the biggest consumer signal tightening supplies, while top exporters curb shipments to bolster prices.

Rubber on the Shanghai Futures Exchange on Tuesday advanced as much as 2.7 per cent to 14,580 yuan (S$3,105) a tonne, the highest intraday level since Aug 29. The commodity will meet the threshold for a bull market if it closes higher than 14,292 yuan, which is 20 per cent above its low in December. Prices are still 67 per cent below their peak in 2011.

Futures in December hit the weakest in almost six years as trees planted in Asia over the past decade matured and flooded the market just as China's economy slowed. Producers including Thailand, the biggest exporter, are seeking to stem the loss by restricting shipments and reducing growing areas. SHFE inventories last week slumped to an 18-month low.

"Raw-material inventory levels at Chinese tyre makers are very low at the moment," said Tong Jingjing, an analyst at the Shanghai unit of Sri Trang Agro-Industry Pcl, Thailand's largest listed rubber exporter. "End-users and some dealers who have oversold in the past few months are now scrambling to buy raw materials available on the market."

Rising prices may boost costs for users including Bridgestone Corp and Goodyear Tire & Rubber Co and help farmers in producer countries including Thailand. The rally may extend to as high as 16,000 yuan, according to Mr Tong. BLOOMBERG