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Rubber Demand In China, India Is Set to Exceed Supply
Supunnabul Suwannakij | April 22, 2011

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Rubber climbed on concerns that demand from China and India may outpace supply during the low-production season in Southeast Asia.

The September-delivery contract advanced as much as 3.1 percent to 425 yen per kilogram ($5,185 per ton) and settled at 419 yen on the Tokyo Commodity Exchange. Futures declined 3.7 percent this week, the second straight fall.

“Rubber demand from China and India is still high, while supply remains low in the short term,” said Masahiro Tamagawa, senior manager at H.S. Futures. Prices are in so-called backwardation, when nearby contracts are more expensive than long-term ones, he said.

Consumption in China, the largest buyer, is expected to grow by 6 percent this year to 3.5 million tons, the Kuala Lumpur-based Association of Natural Rubber Producing Countries said in a March report. India’s demand may rise 5 percent to 991,000 tons, it said.

Michelin, the world’s second-largest tire maker, said first-quarter revenue rose 28 percent to 5.05 billion euros ($7.36 billion), led by surging demand for speciality tires to equip construction equipment and agricultural vehicles.

Thai output may decline from last year if rains that caused floods persist, according to the Thai Rubber Association. Production may be 3.2 million tons this year, Luckchai Kittipol, president of the group, said on Thursday. That compares with last year’s 3.25 million tons and an earlier 2011 target of 3.49 million tons.

“Inventories in China remain low and Chinese buyers may soon step in to buy the commodity,” said Sureerat Kunthongjun, an analyst at Agrow Enterprise in Bangkok. “Some investors took this as a cue to buy.”

Unseasonal rains from the start of this year in Thailand caused floods in 10 southern provinces in March that may have damaged about 7,950 hectares of rubber plantations, according to the Department of Disaster Prevention and Mitigation. Water levels have since receded, it said.

Farmers in Thailand, Indonesia and Malaysia reduce tapping from February to May, when trees shed leaves and latex production drops, according to the Association of Natural Rubber Producing Countries.

The physical price of Thai rubber was unchanged at 177.05 baht ($5.90) per kilogram on Friday, according to the Rubber Research Institute of Thailand. Rubber for September delivery in Shanghai advanced as much as 2 percent to 35,195 yuan ($5,409) per ton before closing at 34,780 yuan.

Bridgestone plans to suspend some production lines and limit operating hours at factories serviced by Tokyo Electric Power Co. to save power during the Japanese summer. The tire maker will shift some production to other regions to cut power use by 25 percent between July and September, according to its Web site. 

Bloomberg