China backs off as TOCOM bounces; Indonesia shy

SINGAPORE (Reuters): China, the world’s largest rubber consumer, was on the sidelines because of a rebound in Tokyo futures, while Thai sellers held on to their inventory after floods hit the country’s main growing area, dealers said on Tuesday.

Indonesia, the world’s second-largest rubber producer after Thailand, was still reluctant to sell tyre grade after a combination of dry and wet weather hit supply in the key growing island of Sumatra.

A few cargoes of Thai RSS3 and STR20 tyre grades changed hands late on Monday at $3.245 to $3.25 a kg for January delivery, up from $3.20 last week as gains in rubber futures on the Tokyo Commodity Exchange (TOCOM) lifted physical prices.

Last week, RSS3 for December changed hands at a discount to January, which indicated ample supply for nearby cargo.

“I don’t hear any offers for December. I think sellers are very selective on nearby shipment. If they think price is OK, then they will sell it. I don’t see sellers chasing buyers this time,” said a dealer in Malaysia, who trades Thai grades.

“China is very quiet. TOCOM has been rising in the last two days; logically buyers will just step out. There’s not much physical trading since last Friday.”

The most active contract on TOCOM, currently May 2012 delivery, rose 2.6 yen to settle at 271.6 yen, off a near 2-year low at 248.6 yen a hit in early November, on rising oil prices and worries about supply disruptions.

Heavy rains caused flash flooding and landslides in several provinces along the Gulf of Thailand, uprooting trees and destroying some plantations completely. The floods also played havoc with rubber tapping.

In Indonesia, the dry wintering season progressed in the southern part of Sumatra, while in the northern part, the start of the rainy season also disrupted tapping.

“SIR20 was bid at 151 cents a pound last night, but I didn’t hear any deals. Supply is short in Sumatra,” said a dealer in Jakarta, referring to Indonesia’s tyre grade.

There were no reports of deals or offers for Malaysian SMR20 grade.

Rains and floods in Thailand could support the physical market, which could tempt China to buy a few cargoes before prices rise again.

Global natural rubber output could rise 3.6 percent to 10.388 million tonnes in 2012, but growth is expected to be slower than this year as falling prices affect yield, the Association of Natural Rubber Producing Countries.

The price of Thai RSS3 tyre grade, often considered the benchmark physical price, has halved since hitting a lifetime high at $6.40 a kg in February on fears Europe’s debt crisis could hurt demand, and after main consumer China recently sought to renegotiate prices.