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SINGAPORE (Dow Jones)–Natural rubber futures on the bellwether Tokyo Commodity Exchange settled at pre-quake levels Friday, even eking out a decent gain from last week”s close, in a quick reversal from the scene earlier in the week when a massive sell-off threatened potential defaults and huge losses to those caught long in the market.
The benchmark August contract closed at 408.6 yen a kilogram, up 2.9% from Thursday”s settlement and 1.8% from last Friday.
The sharp gains resulted in the market hitting limit-up in early trading, triggering a temporary trading halt. The August contract hit a one-week high of Y425.5/kg before gains were pared by some profit-taking ahead of a long weekend that includes a public holiday Monday.
Friday”s rally was aided by a weaker Japanese currency after the government sold yen through the Bank of Japan for the first time since September, sending the dollar surging to as high as Y81.90 at 0656 GMT, from Y79.19 before the announcement.
The move coincided with the Group of Seven industrial powers pledging to intervene in the currency market for the first time in a decade to prevent the yen”s record surge from further damaging an economy ravaged by the earthquake, tsunami and a nuclear disaster.
Investors in the rubber market were scrambling to avoid being caught short amid the strong rebound after a couple of weeks of weak sentiment, a trader said. Tocom rubber had been falling since mid-February after more than doubling to a record high of Y535.7/kg in just seven months, but last week”s earthquake saw that sell-off shift to panic mode. On Tuesday, the contract hit a four-month low of Y335.0/kg, falling as much 13% in a single day.
“Although there is a lot of activity and a rebound today due to the intervention (in the forex market), the overall market sentiment in Japan still depends on ongoing developments at the Fukushima Daiichi nuclear-power complex,” said Kaname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.”s research division.
Gokon said the Japanese market, including Tocom rubber, may gain sharply next week if the situation turns around at the nuclear plant.
Meanwhile, various moves by rubber producers to shore up prices also helped improve sentiment.
Earlier this week, Thailand”s Deputy Prime Minister Suthep Thaugsuban said the government will support local prices at THB120 a kilogram ($3.96). He also sought a temporary suspension of exports until markets stabilized and has called a meeting of agencies Monday to discuss the measure. Thailand is the biggest producer and exporter of natural rubber, accounting for one-third of global natural rubber production.
Indonesia, the second-biggest producer, has proposed to its members that a floor price of $4.00/kg be “defended,” Suharto Honggokusumo, executive director of the Rubber Association of Indonesia, or Gapkindo, said Thursday.
Meanwhile, the International Rubber Consortium said it would work collectively to stabilise prices, should the market come under pressure again. The organization which has Thailand, Indonesia and Malaysia as members, is also engaging the China Rubber Industry Association to counter price volatility. China is the biggest importer of natural rubber.
The Thai government move has already had an impact on physical trade as production has already been low at this time of the year.
Prices of unsmoked sheet 3-grade rose sharply to THB132.55-THB134.55/kg Friday, from a low of THB89.00-THB102.59/kg Monday. Arrivals fell sharply to just 7 tons Friday from 122.5 tons Monday.
The government”s decision to support prices is encouraging farmers to hold stocks back in anticipation of further price gains during the low production season, said a trader in Yala province.
Large exporters also bid aggressively, as they need the raw material in this season, he said.
“I think USS3 prices may see more upside if Tocom extends gains. Prices had been falling sharply for a couple of weeks, so any sign of a sustained rebound on Tocom will encourage stockpiling,” the trader said.
Most other Asian rubber futures contracts also rose in line with Tocom”s gains.
On the Shanghai Futures Exchange, rubber futures settled 2.5% higher, while ribbed smoked sheet 3-grade on the Agricultural Futures Exchange of Thailand hit the THB7 daily upper limit. Rubber futures traded on the Singapore Commodity Exchange are also trading higher.
Source: Dow Jones