Rubber’s rally to a record today in China may be extended after prices broke a key resistance level and demand rises amid tight supply, according to technical analysis by Yongan Futures Co.

The breaking of 30,000 yuan ($4,513) a metric ton was a key resistance level, Guo Cheng, analyst at Yongan, said by phone from Beijing. Resistance is a level on a chart where sell orders may be clustered, and support is a level where there may be buy orders.

“Rubber futures in China have decisively broken resistance for two days, establishing a bull trend that will see prices advance further,” Guo said. Rubber futures had been range-bound between 17,000 yuan and 29,800 yuan in the previous five years, he said.

Natural rubber for March delivery, the most-active contract traded on the Shanghai Futures Exchange, reached a record 31,800 yuan a ton today, brining the gain this year to 30 percent. The contract climbed 0.4 percent to 31,695 yuan at 10:11 a.m. local time.

Natural rubber imports by China, the world’s largest user, jumped 19 percent from a month earlier to 190,000 tons in September, the customs said on Oct. 13. China’s total imports in the first nine months gained 2 percent to 1.34 million tons.

“The rally has further upward momentum as market sentiment is now buoyed amid tight supply and loose monetary conditions around the world,” Guo said. “The adverse weather in China has also hampered production.”

A severe drought in Yunnan at the beginning of this year and the recent torrential rains in Hainan, the top two producers in China, will reduce domestic output, he added.

In technical analysis, investors and analysts look at price charts to forecast resistance levels, or ceilings restricting further price increases, and support levels, or floors limiting declines.

Source: Bloomberg

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