Rubber Reaches Record High on China's Tire Demand

(KPB PTPN ) : Natural rubber prices rose to a record on the Tokyo Commodities Exchange spurred by rising demand for tires in China, and as surging oil prices make synthetic alternatives more expensive.

Rubber for delivery in December rose as much as 1.1 percent to 185 yen ($1.63) a kilogram on the world's largest rubber futures market, eclipsing the previous record for a most-active futures contract of 183.1 yen set on March 3, 1995. The futures traded at 184.3 yen at 9:59 a.m. Tokyo time.

Prices have surged 40 percent this year, increasing costs for Bridgestone Corp., Michelin & Cie, Goodyear Tire & Rubber Co. and other tire makers. Yokohama Rubber Co., Japan's third-largest tire maker, said in May that it will probably miss its sales and profit target for the year ending March 2006 even as it joined bigger rival Sumitomo Rubber Industries Ltd. in raising prices.

“The surge in natural rubber prices will erode profit for tire companies,'' said Takao Oshitari, an equities analyst with Mizuho Securities Co. Ltd. In Tokyo. “Costs have risen since June. Given that companies purchase materials six months in advance, the real impact will be visible from October or November.''

In China, the world's biggest rubber-consumer, stockpiles have dwindled 91 percent the past year in warehouses monitored by the Shanghai Stock Exchange as automakers snap up supplies to meet demand for new vehicles, sales of which climbed 9.4 percent to 2.79 million units in the first half.

China

“The real story is solid, robust global demand growth, particularly coming out of China,'' Michael Coleman, managing director of Aisling Analytics Pte, which manages a commodities hedge fund in Singapore, said last week in an interview.

The tire industry is the biggest consumer of rubber. Higher prices for synthetic rubber have caused the natural commodity to increase its share of the total global rubber market to 41 percent from 39 percent the past three years, according to the International Rubber Study Group in London.

China's vehicles sales reached 2.79 million units in the six months ended June 30, with passenger car sales expanding 10.6 percent to 1.84 million units, according to the China Association of Automobile Manufacturers. Ford Motor Co., the second-biggest U.S. automaker, said it sold 22 percent more vehicles in China in the first six months of 2005, compared with last year.

Yokohama, Sumitomo

China's vehicle and parts makers posted a 53 percent drop in profit in the first five months, partly because of higher raw material costs, the Ministry of Commerce said last week.

“Both Yokohama Rubber and Sumitomo Rubber have raised their product prices,'' said Oshitari at Mizuho Securities. “ I don't believe that will completely solve the problem of higher costs.''

Bridgestone Firestone Maxiprest Ltd., a South African tire retailer, said yesterday it will report a first-half loss of between 10.7 cents and 11.4 cents a share. It didn't give a reason.

U.S. Gulf spot prices for butadiene, the petrochemical used to make synthetic rubber, have surged 39 percent to 49.5 cents a pound in the past year, according to data compiled by Bloomberg. Butadiene is derived from processing crude oil. Crude reached a record $62.1 a barrel on July 7 and traded as high as $57.71 today.

Prices in Thailand, the world's biggest rubber producer, have jumped 63 percent this year, prompting suppliers to increase 2005 output by a forecast 5.9 percent to 3.14 million tons. Auction prices for benchmark ribbed smoked sheet rubber were at 69.11 baht ($1.65) a kilogram at the central rubber market in Songkhla province yesterday, the highest in at least four years. (mes)

Source : http://www.bloomberg.com