Rubber climbed by the most in a week after China signaled it will unshackle the yuan’s fixed rate to the dollar, stoking speculation the world’s largest consumer may boost imports of the commodity used in tires.

Futures in Tokyo climbed as much as 3.6 percent, extending last week’s rally. The price neared a two-week high of 286.7 yen reached on June 16 amid optimism that Europe’s sovereign-debt crisis may not stall global recovery.

The People’s Bank of China said on June 19 it may allow the yuan to move higher, making imports more affordable to buyers in the world’s third-largest economy. Asian shares and commodities surged while the dollar weakened against major counterparts as China’s move boosted investor confidence.

“A stronger yuan would encourage Chinese tire makers to increase rubber purchases from overseas to cut costs,” Takaki Shigemoto, an analyst at research and investment company JSC Corp. in Tokyo, said today by phone.

November-delivery rubber gained as much as 10 yen to 284.4 yen per kilogram ($3,134 a metric ton) before settling at 282.6 yen on the Tokyo Commodity Exchange.

November-delivery rubber on the Shanghai Futures Exchange added 2.2 percent to 21,675 yuan ($3,183) a ton. Earlier, the price increased to 22,200 yuan, the highest level since June 3.

China, the world’s largest auto market, is also the biggest user of natural rubber. The nation may boost gross imports of the raw material to 1.68 million tons this year from 1.59 million in 2009, according to the May report from the Association of Natural Rubber Producing Countries.

Natural Rubber

China’s production of natural rubber may grow to 680,000 tons this year from 645,800 tons in 2009, the report said.

“Domestic rubber will become more expensive than imported product if the yuan strengthens against the dollar,” Shigemoto said. Raw material imports will climb unless a higher Chinese currency hurts tire exports, he said.

China’s central bank indicated it’s abandoning the 6.83 yuan peg to the dollar adopted during the global financial crisis to shield exporters. American lawmakers had argued that the yuan peg was an unfair subsidy for China’s exporters. A stronger yuan may allow policy makers the ability to stanch inflation without curbing economic growth.

“It’s a vote of confidence in Asia and in risk appetite and a reduction in the dangers of a trade war,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney.

Global rubber output may total 9.7 million to 10.2 million tons this year as drought and heavy rainfall in key producing countries including Thailand and Indonesia damage supply, Stephen Evans, the secretary-general of the International Rubber Study Group, said in an interview last week. That compares with the group’s forecast range of 10.1 million to 10.6 million tons on March 17.

Demand will probably increase by 4.4 percent this year to 9.8 million tons, based on the assumption that the economic recovery will slow, Evans said. The group forecast 10.2 million tons in March.

Source: Bloomberg

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