Rubber dropped as a decline in crude oil prices and a strengthening Japanese currency reduced the appeal of the commodity used to make tires, and as slowing China growth raised concerns that demand may weaken.

January-delivery rubber in Tokyo fell as much as 1.6 percent to 277.5 yen a kilogram ($3,252 a metric ton) before settling at 277.8 yen on the Tokyo Commodity Exchange. The contract dropped for a third day, the longest losing streak since the three days ending July 13.

The yen gained against all 16 major counterparts after the Federal Reserve said the U.S. recovery will be slower than expected and that today reports showed Japan’s machine orders rose less than forecast in June.

“A combination of a falling crude oil price and a stronger yen is pressuring the market, lowering rubber prices,” Varut Rungkhum, an analyst at Agro Wealth Ltd., said today by phone from Bangkok.

Oil dropped for a second day to a seven-day after the U.S. Labor Department said the country’s economy lost momentum heading into the second year of the recovery from the worst recession since World War II. Crude oil for September delivery declined 0.9 percent to $79.50 a barrel on the New York Mercantile Exchange at 4:34 p.m. Tokyo time.

Demand Worries

“Declining Chinese industrial production growth gave a negative sentiment to the market, dragging Shanghai market into the red,” said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co. “The news sparked worries demand for rubber may slow.”

China’s industrial output increased by the least in 11 months, retail sales growth eased and new loans climbed less than estimated, adding to signs that a slowdown in the world’s third-biggest economy is deepening.

Production rose 13.4 percent from a year earlier, the statistics bureau said in Beijing today. Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year- earlier base for comparison and rising food costs.

Losses in rubber were limited as prices are supported by forecasts for growth in China’s vehicle sales, Varut said.

Auto sales in China, the world’s biggest market, may rise to 16 million this year, a manufacturers’ group said, boosting its forecast from a previous estimate of 15 million. Vehicle sales will be higher than previously expected judging by deliveries in the first half of the year, Beijing-based Dong Yang, vice president of the China Association of Automobile Manufacturers, said in an interview yesterday.

January-delivery rubber in Shanghai lost 0.7 percent to close at 24,685 yuan ($3,644) a ton after rising to 25,085 yuan earlier today.

Source: Bloomberg

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