Rubber Falls to Near Three-Week Low on China Tightening Concern

By Aya Takada

Jan. 26 (Bloomberg) -- Rubber dropped for a third day to near the lowest level in three weeks as concern that China will step up measures to slow economic expansion spurred a rally in the Japanese currency, cutting the appeal of yen-based contracts.

Rubber for June delivery fell 0.7 percent to 284 yen per kilogram on the Tokyo Commodity Exchange. The contract dropped as much as 0.8 percent to 283.8 yen ($3,164 a metric ton).

Several Chinese banks will face an additional increase in their reserve ratios, Reuters reported, citing sources it didn’t identify. China has already taken action to restrict record bank loans, while President Barack Obama plans to limit the size and trading activities of financial institutions. China is the world’s largest rubber consumer.

“Caution about China’s tightening of its monetary policy put a drag on the price of rubber futures,” Hisaaki Tasaka, an analyst at Tokyo-based commodity broker ACE Koeki Co., said today by phone. Futures also “took a cue for direction from the volatile currency market,” he added.

The contract earlier gained 2.1 percent to 292.0 yen as the yen declined after Obama’s endorsement of a second term for Federal Reserve Chairman Ben S. Bernanke, boosting demand for higher-yielding currencies.

Prices fell to 281.5 yen yesterday, their lowest level since Jan. 4, after Obama last week called for investment limits on banks to help prevent another financial crisis. Rubber for July delivery, listed on the exchange today, settled at 286.2 yen per kilogram after opening at 290 yen.

China Growth

China’s central bank has driven bill yields higher to reduce funds in the banking system on concern record loan growth will fan inflation and lead to bubbles in the property market. Chinese banks have suspended new lending since Jan. 19 across the country, Dong Tao, a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients.

May-delivery rubber on the Shanghai Futures Exchange lost as much as 1.9 percent to 24,120 yuan ($3,533) a ton before trading at 24,200 yuan at 2:36 p.m. local time. Prices slumped to a one-month low of 24,105 yuan on Jan. 22.

In the cash market, shippers in Thailand, the biggest exporter, are offering RSS-3 grade rubber for March shipment at $3.13 a kilogram, from last week’s peak of $3.25 reached Jan. 20, Tasaka at ACE Koeki said. Lower prices may be attracting physical buying, he added.

Supplies in the global natural rubber market are tight and the fundamentals are favorable for prices, the Association of Natural Rubber Producing Countries said in a newsletter today.

The association estimated Indonesian output at 2.77 million metric tons in 2010, India’s at 853,000 tons and Vietnam’s at 770,000 tons.

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