Rubber Gains by Limit for Second Day on Rally in Oil, Stocks

By Aya Takada

Oct. 21 (Bloomberg) -- Natural rubber futures climbed by the daily limit for a second day as a rally in oil prices boosted the cost of making the rival synthetic product and a recovery in equities eased concern that slowing economic growth will reduce demand.

Futures in Tokyo gained 16 yen or 8.6 percent, their third straight increase. Prices have advanced 26 percent from the three-year low of 159.3 yen a kilogram ($1,560 a ton) reached on Oct. 17. Crude oil rose for a third day on signs the Organization of Petroleum Exporting Countries will reduce output to halt a 49 percent drop in prices since July.

``Investors bought back rubber futures on speculation production cuts by OPEC members will boost oil prices,'' Kazuhiko Saito, strategist at Interes Capital Management Co. in Tokyo, said today by phone. Higher oil prices are positive for natural rubber as synthetic alternatives are made from naphtha, which is distilled from petroleum.

Rubber for March delivery, the most-active contract, added 16 yen to 201.2 yen a kilogram ($1,976 a metric ton) on the Tokyo Commodity Exchange at the 11 a.m. local time break. The Nikkei-225 Stock Average rose 2.6 percent the same time, its third straight gain, on optimism the U.S. and Japan will expand efforts to stimulate the world's two largest economies.

Futures also gained on speculation the world's largest producers may agree to cut rubber output to support prices, Saito said. Thailand and Indonesia, the top exporters, and Malaysia will meet next week to discuss steps to stem a slide in prices, Suharto Honggokusumo, executive director of the Indonesian Rubber Association, said Oct. 17.

Car Sales Slump

Futures lost 20 percent this month and retreated 44 percent from a 28-year high of 356.9 yen set on June 30 amid concern falling car sales may weaken demand for the commodity used to make tires.

Nissan Motor Co. and Hyundai Motor Co. joined other Asian carmakers in further reducing vehicle assembly as the global financial crisis erodes demand.

Nissan, Japan's third-largest automaker, will cut production at two domestic factories by 65,000 vehicles between November and March, Ikue Matsuura, a spokeswoman for Nissan, said today. The carmaker will also stop production for three days at plants in Tennessee and Mississippi. Hyundai, South Korea's biggest carmaker, will idle its Alabama plant for 11 days this year.

``The rubber market may come under pressure again,'' Interes Capital's Saito said. ``We will probably get more bad news from the car industry in coming weeks.''

Economic growth in China, the largest rubber consumer and the biggest contributor to rising global demand, expanded at the slowest pace in five years in the three months ended Sept. 30 as the financial crisis cut demand for its exports.

Gross domestic product rose 9 percent in the quarter from a year earlier, China's statistics bureau said yesterday. Growth slowed from 10.1 percent in the previous three months.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net