Rubber May Extend Record Rally as Rain Limits Output, Hurting Bridgestone

Natural rubber, which has beaten other commodities this year, may extend a record rally as rains cut supply, compounding a seasonal output drop, while surging auto sales boost demand, according to analysts and fund managers. Futures reversed early losses to reach an all-time high in Tokyo.

The commodity will “rally until the price reaches a point that will substantially weaken physical demand,” said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo, who correctly forecast in September a rally to a record. “It’s hard to predict where that level is; it may be 600 yen,” Emori said.

Futures peaked at 454.7 yen per kilogram ($5,505 per metric ton) on the Tokyo Commodity Exchange today, extending last year’s 50 percent jump. The advance raises costs for tiremakers such as Bridgestone Corp. and boosts inflation as other commodities including grains and oil climb. The price may gain to 500 yen in the first half, according to the median forecast of four analysts and fund managers surveyed by Bloomberg News.

The “rally won’t stop until shipments from Thailand increase,” said Hisaaki Tasaka, an analyst at Tokyo-based broker ACE Koeki Co., who also predicted in September that the price would rally. “Rubber futures may climb to 500 yen per kilo by June as supply falls short of rising demand.”

Rubber has gained as much as 9.7 percent this year, beating the returns of members in the S&P GSCI Commodity Index. The cash price in Thailand, the largest supplier, has also risen to a record, reaching 166.3 baht ($5.46) per kilogram today.

Global Deficit

Natural rubber will be in deficit in 2011 for a second year, according to a November estimate from Niels Fehre, an analyst at HSBC Trinkaus & Burkhardt AG, who wasn’t part of the survey. Global demand of 10.7 million tons may outpace supply by 513,000 tons this year after a shortage of 417,000 tons in 2010, according to an HSBC report.

“Although prices keep rising, demand remains strong as buyers are accelerating purchases ahead of the low-production period and Lunar New Year holidays,” Sureerat Kunthongjun, an analyst at AGROW Enterprise Ltd., said by phone from Bangkok. The week-long holiday in China runs from Feb. 2.

Heavy rain from a La Nina weather event, which has also brought floods to Australia, has hurt rubber-tapping across Southeast Asia. During the so-called wintering season, which starts next month and runs until May, Thai rubber output usually shrinks as much as 60 percent from peak levels, the Association of Natural Rubber Producing Countries said in December.

‘Improved Optimism’

“Rising car sales have improved optimism that demand for car tires will remain robust, outpacing inadequate supplies,” said Wanwilai Choilek, manager at the Hadyai, Thailand branch of commodity broker DS Futures Ltd.

China’s passenger-vehicle sales surged 33 percent in 2010, according to the China Association of Automobile Manufacturers. The country’s automobile market will almost triple to 40 million vehicles, with half the world’s production based in the Asian nation by 2020, the Financial Times said today, citing Beijing Automotive Industry Holding Co. President Wang Dazong.

Bridgestone Europe, a unit of the biggest tiremaker, raised prices by an average of 6 percent, citing higher costs, according to a statement on Jan. 10. “We have not seen an end to the escalation of raw-materials prices,” said Makio Ohashi, chief executive officer and president of Bridgestone Europe.

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

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