Rubber climbed to a record on expectations that demand from China for the commodity used in tires will keep expanding even after the nation raised interest rates for the third time in four months to restrain inflation.

The July-delivery contract gained to as much as 510 yen a kilogram ($6,178 a metric ton) in after-hours trade on the Tokyo Commodity Exchange. Transactions in this session are settled tomorrow. Futures in Shanghai surged 4.3 percent to a record 43,500 yuan a metric ton as trade restarted after a holiday.

The People’s Bank of China raised the one-year lending rate by a quarter point to 6.06 percent, effective today, and the one-year deposit rate by an equivalent amount to 3 percent. Premier Wen Jiabao’s government has yet to return rates to pre- crisis levels, seeking to sustain the economy’s rebound.

“The moderate increases in Chinese rates are unlikely to derail the nation’s economy from expansion,” Kazuhiko Saito, an analyst at broker Fujitomi Co. in Tokyo, said by phone. There’s “speculation demand from China will continue to grow.”

China’s central bank announced the move yesterday, the last day of the weeklong Lunar New Year holiday, and before a report next week that may show consumer prices rose 5.3 percent in January, according to the median estimate in a Bloomberg survey.

“Demand in China remains strong and stockpiles are at low levels,” Pornthip Wongjirattikarn, marketing manager at Future Agri Trade Co., said by phone from Bangkok.

All-Time High

The physical price of natural rubber in Thailand, the world’s largest exporter, extended gains to an all-time high of 187.80 baht ($6.12) per kilogram, boosted by strong demand from local and overseas buyers amid concerns over supply shortages, the Rubber Research Institute of Thailand said today.

Natural-rubber consumption in China may rise 9 percent to 3.6 million tons this year, while rubber use in India may gain 5.2 percent to 991,000 tons, according to the Association of Natural Rubber Producing Countries.

Output from Thailand, Indonesia and Malaysia, which account for about 70 percent of global supply, has been curbed as a La Nina has led to higher-than-average rains in parts of Southeast Asia. The weather event started in June.

Supply is expected to decline further in coming months as the seasonal low-production period will start in major growing areas in Thailand, Saito at Fujitomi said. Farmers reduce tapping during the so-called wintering period from February to May, when trees shed leaves and latex production drops.

Rubber futures have gained 23 percent this year, extending last year’s 50 percent rally, as rising car sales led by China and India boosted demand for tires.

Source: Bloomberg

Comments are closed.