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Asia rubber: TOCOM falls kill tight supply euphoria

KUALA LUMPUR: Expected falls in Tokyo futures and the fact that buyers have replenished their rubber stocks ahead of the wintering season in Indonesia, Malaysia and Thailand will depress prices this week, traders said on Monday.

Last week's carnage on Wall Street on fears of a further US interest rate hike sparked a surge in yen against the dollar and was expected to drag down prices at the yen-denominated TOCOM futures market.

"If TOCOM keeps falling down, it will affect the rest of the rubber market in Southeast Asia. Consumers are already well-covered ahead of the wintering season, they have done a good job," said one trader in Singapore.

STRONGER YEN WILL DRAG DOWN PRICES AT TOCOM

Another trader said: "If we have a stronger yen, then prices should be cheaper at TOCOM and also because the physical market is denominated in US dollar. I think we will see bearish commodity markets this week."

Traders said Indonesian tyre-grade SIR20 was sold last Friday at 29.00 US cents/lb fob Palembang, but no deals were heard in Thailand or Malaysia, where traders expected prices to stay firm this week on tight supply.

"There's no doubt supply is tight in Malaysia and Thailand, but the thing is that consumers have stocked up. China, which is a big buyer, is also out of the market," said the first trader.

"Wintering should be over soon in Malaysia and Thailand and you will see people resuming their tapping activity. More supply will mean falling prices. Buyers don't need to buy much rubber these days because they have ample stocks," he added.

Malaysia's May RSS1 buyers were unchanged at 278.00 Malaysian cents (73.15 US cents) a kg on Friday, while May SMR20 rose half a cent to 261.50 cents against the previous day.

Traders in Kuala Lumpur said news Malaysia produced less natural rubber in February compared with January also boosted sentiment in the market despite a slowdown in demand.

The Statistics Department said on Friday Malaysia produced 56,463 tonnes of natural rubber in February, down 2.5 percent from January. Compared with February 1999, production was down by 25,164 tonnes or 30.8 percent.

But regional traders said the market, especially in Malaysia and Thailand, would see a correction because the wintering season would end soon. Movements in TOCOM would also rule the market this week, they said.

"The market will surely look at what happens in Wall Street. I don't think weather is a factor in the market," said a third trader.

Before the crash on Wall Street on Friday, the Tokyo rubber futures had closed down across the board in thin trade as light selling by major trading houses led other players to liquidate long positions.

Traders said they rejected claims from Indonesia that supply was tight there.

"There's no tight suppply in Indonesia whatsoever. There is plenty of rubber there. I can even buy supply for nearby shipments, such as April," said the first trader.

"Claims that supply is tight in Indonesia are purely nonsense," he added.-Reuters