Rubber dropped for the third time in four days as the price of crude oil declined and optimism faded that China’s would increase purchases after dropping its currency’s peg to the dollar.

Futures in Tokyo declined as much as 2.1 percent after climbing 3 percent yesterday after China signaled it will unshackle the yuan’s fixed rate to the dollar, stoking speculation that the world’s largest consumer may boost imports.

“The good news from the yuan flexibility has faded as it lacked support from Wall Street,” said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co.

Rubber for November-delivery dropped as much as 5.8 yen to 276.8 yen per kilogram ($3,048 a metric ton) before settling at 277.6 yen on the Tokyo Commodity Exchange.

The November-delivery contract on the Shanghai Futures Exchange declined 1.9 percent to settle at 21,475 yuan ($3,151) a ton. Yesterday, the price climbed as high as 22,200 yuan, the highest level since June 3.

The People’s Bank of China pledged on June 19 to make the yuan more flexible, making imports more affordable to buyers in the world’s third-largest economy.

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

Debt Crisis

“Investors are still worried that the European debt crisis may weaken rubber demand,” said Navarat Kaewpratarn, marketing official at Future Agri Trade Co., said by phone from Bangkok.

Investor sentiment worsened after the European Central Bank governing council member Christian Noyer said some banks are facing funding problems. Standard & Poor’s Ratings Services lowered its economic growth forecast for Spain and said Spanish lenders face difficult years as credit losses mount.

“The market is in correction mode after sharp gains yesterday,” said Kazunori Kokubo, general manager for International Business Department at Yutaka Shoji Ltd. “Oil is also down, driving the rubber market lower.”

Crude oil declined for the first time in three days as optimism faded that China’s plan to add more flexibility in the yuan’s fixed exchange rate would strengthen the global economic recovery. A drop in crude oil cuts appetite for rubber.

Increasing supply from Thailand added pressure to the rubber market, Chaiwat said from Bangkok. An average of 200 tons of ribbed smoked sheet RSS-3 rubber a day is available in the market this month, compared with slightly more than 100 tons a day in May, he said.

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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