Rubber pared an earlier drop as Thailand’s most severe floods in five decades raised concerns that supply will likely tighten, boosting prices.

The April-delivery contract settled little changed at 336.8 yen per kilogram ($4,145 a metric ton) on the Tokyo Commodity Exchange after declining as much as 0.9 percent. Rubber has climbed 8.2 percent this month on concern that rain in major producing countries will cut production amid robust demand. Futures surged 22 percent this year.

“Rain continues in southern Thailand and other producing countries, disrupting latex tapping and lowering production,” Umaporn Thepnuan, senior marketing official at Future Agri Trade Co., said by phone from Bangkok.

Cyclones and heavier-than-normal monsoon rains have deluged parts of Southeast Asia this month, killing hundreds of people in key rubber-producing countries. Heavy rain may cause flash floods and landslides in 15 southern provinces in Thailand before the end of the month, the Department of Disaster Prevention and Mitigation warned. About 68 percent of rubber plantation areas are in the country’s south.

A natural-rubber supply shortage will likely “worsen” in the fourth quarter as unseasonal rainfall continues to disrupt production from key growers, the Association of Natural Rubber Producing Countries said.

Global rubber production this year is unlikely to increase more than 5.3 percent to 9.4 million tons, from a previous forecast of 6.3 percent, the association said. A further cut in output is expected because of tapping disruptions in Malaysia, Thailand and India, the group said.

Output Falls

Output in Thailand, the largest producer and exporter, is estimated to fall 3.9 percent in the fourth quarter to 933,000 tons, the group said in a monthly bulletin.

Output in China and India is expected to contract during October to December because of heavy rain, the group said. India has scaled down its production forecast this year to 844,000 tons from 879,000 tons estimated earlier, while China cut its 2010 output forecast to 641,000 tons, a decline of 0.3 percent from the previous year, the group said.

“This is positive for rubber prices because supply is declining as China and Japan build up stockpiles, ahead of wintering season when producers stop tapping,” Sureerat Kunthongjun, analyst at AGROW Enterprise Ltd., said by phone from Bangkok. Futures may extend their rally to 357 yen, the highest level since June 2008, by the end of the year, she said.

Shanghai Soars

The auctioned price of unsmoked rubber sheet in Thailand rose 0.2 percent to 109.76 baht ($3.66) a kilogram as investors are worried over supply shortages amid persistent purchases from China, the Rubber Research Institute of Thailand said on its website today. Prices will likely climb further, it said.

Shanghai futures advanced as much as 4.1 percent to 32,495 yuan ($4,858) a ton before closing at 32,320 yuan. The contract, which reached a record 33,320 yuan Oct. 26, slumped as much as 4.4 percent yesterday on concerns that China, the largest buyer, may impose stringent measures to limit speculation and lower commodity prices.

“Investors are still worried the Chinese government may impose measures to reduce high prices of commodities,” Gu Jiong, analyst at broker Yutaka Shoji Co., said by phone from Tokyo.

The Zhengzhou Commodity Exchange increased the margin requirement on Oct. 26 for rice, rapeseed oil, wheat and sugar trading to 8 percent from 3 percent or 4 percent. The exchange will track “abnormal” trading and recommend investigation by watchdogs, a separate statement dated Oct. 25 said.

China’s increased liquidity after the financial crisis and government curbs on property investments have stoked commodity prices. In the past five months, cotton in Zhengzhou advanced 59 percent, rubber in Shanghai gained 48 percent, while Dalian soybean oil rose 15 percent.

Source: Bloomberg

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