Rubber Drops as Chinese Equities Slump Threatens to Hurt Demand

By Aya Takada

Aug. 19 (Bloomberg) -- Rubber dropped by as much as 2.3 percent, reversing earlier gains, as a sell-off in Chinese stocks raised concern the world’s third-largest economy may slow, curbing demand for raw materials.

Futures in Tokyo declined for the third time in four days after China’s stocks fell, briefly driving the benchmark index into a so-called bear market, more than 20 percent below this year’s high, on concern the country’s economic recovery will falter as the government reins in lending.

“A slowdown in the Chinese economy could have a significant influence on commodity demand as the nation was the main driver of the global economic recovery,” Kazuhiko Saito, chief analyst at Tokyo-based commodity broker Fujitomi Co., said today by phone.

January-delivery rubber, the most-active contract, lost 1.6 percent to settle at 192.7 yen a kilogram ($2,045 a metric ton) on the Tokyo Commodity Exchange.

The Shanghai Composite Index fell 4.3 percent to 2,785.584. The index has lost 19.8 percent since reaching a 14-month high on Aug. 4 and is 59 percent below its record level, reached on Oct. 16, 2007.

Chinese Prime Minister Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index to more than double from an October low. The rally faltered as new loans in July declined to less than a quarter of June’s level.

Rubber futures earlier jumped by as much as 3.9 percent on speculation tire makers may step up raw material purchases to meet demand from carmakers. Nomura Holdings Inc. raised its stance on the Japanese auto industry to “bullish” from “neutral”, citing a recovery in demand.

Toyota Motor Corp. will raise its global production plan to 6.67 million vehicles this business year, up from 6.3 million units, because of increasing sales of hybrid vehicles, the Yomiuri newspaper said today. Hideaki Homma, a Toyota spokesman, denied the report later.

January-delivery rubber on the Shanghai Futures Exchange lost 1.1 percent to 18,005 yuan ($2,634) a ton.

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