Rubber Reaches 21-Month Low as Credit Crisis May Weaken Demand

By Aya Takada

Oct. 6 (Bloomberg) -- Natural rubber futures in Tokyo tumbled to their lowest in more than 21 months on concern the global credit crisis is slowing economic growth and weakening demand for the raw material used to make car tires.

The most-active contract fell as much as 5.3 percent to the lowest since Dec. 22, 2006, after posting the largest weekly loss in two years last week. Asian stocks fell for a third day today as the credit crisis deepened in Europe and the U.S., prompting some investors to dump commodity holdings.

``Investors are exiting the market as there are no positive incentives in sight,'' Jun Nishimuta, an analyst at Kanetsu Asset Management Co. in Tokyo, said today by phone.

Rubber for March dropped 5.1 percent to 230 yen a kilogram ($2,202 a metric ton) on the Tokyo Commodity Exchange at the 11 a.m. local time break. Prices have retreated 36 percent since reaching a 28-year high at 356.9 yen on June 30, when record oil prices spurred investors to buy commodities as an inflation hedge.

Hypo Real Estate Holding AG, Germany's second-biggest property lender, became the latest casualty of the upheaval, as the German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue. BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium and Luxembourg after an earlier government rescue failed.

The turmoil in financial markets is hurting consumer sentiment, leading to a drop in car sales, Nishimuta said.

U.S. vehicle sales in September decreased for an 11th straight month, the longest slide in 17 years. Overall sales of new cars and light trucks dropped 27 percent last month, Autodata said Oct. 1. It was the biggest monthly drop since January 1991, according to Ward's AutoInfoBank in Southfield, Michigan.

Weaker Yen

Rubber futures also declined as Japan's currency climbed against the dollar, making yen-denominated contracts less attractive to investors, Nishimuta said.

The futures contract often moves in the opposite direction to the yen as rubber trades globally in dollars. The U.S. currency fell for the fourth day against the yen on speculation $700 billion bank rescue plan may not prevent a U.S. recession.

January-delivery rubber on the Shanghai Futures Exchange, the most-active contract, tumbled by the daily limit of 885 yuan, or 4.7 percent, to 18,135 yuan ($2,648) a ton at 10:26 a.m. local time. China's exchanges were closed last week for a holiday.

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