Biggest Rubber Glut Since 2004 Offers Respite to Bridgestone: Commodities

Rubber plantations from Indonesia to Ivory Coast will tap a global crop this year that will create the biggest glut since at least 2004, cutting costs for Bridgestone Corp. (5108), Michelin & Cie. and other tiremakers.

The market will switch to a 413,000-metric-ton surplus, from an 87,000-ton shortage in 2011 that helped drive rubber to a record in February, Goldman Sachs Group Inc. (GS) estimates. Prices fell since then on prospects for more supply and slower growth in China, the largest consumer. Futures will drop as much as 12 percent to 240 yen ($3.12) a kilogram (2.2 pounds) in Tokyo this year, the lowest since November 2009, the median estimate in a Bloomberg survey of 14 analysts and traders shows.

Commodities posted their first annual loss in three years in 2011 as China, the biggest user of everything from coal to cotton to copper, slowed growth to cool inflation that reached a three-year high in July. Auto sales in the nation rose 2.6 percent in the first 11 months of last year, down from 32 percent in 2010, industry data show. That’s adding to pressure on raw-material prices, already weakening as economists surveyed by Bloomberg forecast the slowest global growth since 2009.

“The outlook for rubber prices is linked to global and Chinese economic growth,” said Chris Pardey, chief executive officer of Singapore-based RCMA Commodities Asia Group, which trades natural and synthetic rubber. “My view is negative on the global economy and therefore negative on rubber.”

Tsunami in Japan

Prices slumped 49 percent to 273 yen since reaching an all-time high of 535.7 yen on Feb. 18 on the Tokyo Commodity Exchange. Global car production was disrupted by the earthquake and tsunami in Japan in March and then by flooding in Thailand in the fourth quarter.

Rubber is the fifth worst-performing commodity among 80 tracked by Bloomberg in the past 12 months, behind two carbon contracts, rhodium and ruthenium. The Standard & Poor’s GSCI of 24 raw materials rose 6.7 percent as the MSCI All-Country World Index of equities dropped 8.1 percent. Treasuries returned 9.5 percent, a Bank of America Corp. index shows.

World supply will increase 7 percent to 11.8 million tons this year as demand rises 3 percent to 11.4 million tons, Goldman analysts led by Yuichiro Isayama in Tokyo estimate. Inventories among members of the Kuala Lumpur-based Association of Natural Rubber Producing Countries, representing about 92 percent of global production, will expand 12 percent to 1.45 million tons this year, the group said.

Global Demand

Stockpiles (SHFNRUB) held by processors and traders in China reached 365,600 tons by the end of December, compared with 46,100 tons at the end of July, the ANRPC said in a report Jan. 4. The country accounted for 34 percent of global consumption in 2010, according to the Singapore-based International Rubber Study Group. Chinese demand may gain 5 percent to 3.77 million tons after dropping 1.3 percent last year, the first decline since at least 2004, Goldman Sachs estimates.

China, now the world’s largest car market, will expand 8.5 percent this year, compared with 9.2 percent in 2011, the median of 14 economist estimates compiled by Bloomberg show. That would be slowest since 2001. The economy is experiencing “downside pressure” and “elevated inflation,” Premier Wen Jiabao said in a statement Jan. 4.

The projected growth in China would still be more than four times the anticipated 2.1 percent gain in the U.S., forecasts compiled by Bloomberg show. Auto sales that probably rose about 5 percent last year should accelerate to 10 percent in 2012, the Beijing-based China Association of Automobile Manufacturers estimates. The group cut its forecasts twice last year.

Inflation Eases

Inflation (CNCPIYOY) eased to 4.2 percent in November from a year earlier, the slowest pace in 14 months, giving the government greater scope to shore up growth. The central bank will probably cut lenders’ reserve requirements before a weeklong holiday starts Jan. 23 to stimulate loans, economists at Barclays Capital and Bank of America said in reports on Dec. 19 and 29. It already did so last month for the first time since 2008.

The nation imported 240,000 tons of natural rubber in November, matching volumes in September that were the highest since August 2006, customs data show. The gains indicate that manufacturers anticipate a rebound in demand, said Makiko Tsugata, an analyst at Market Risk Advisory, a research company in Tokyo.

Demand for tires may also be bolstered by expanding global sales of cars and light commercial vehicles, which will advance 6.7 percent to a record 77.7 million units this year, according to R.L. Polk & Co., a research company in Southfield, Michigan. Chinese consumers may buy 16 percent more, it estimates.

Synthetic Rubber

That may still not be enough to diminish the anticipated glut of natural rubber, which also faces more competition from synthetics. The material, derived from crude oil, fell 38 percent to $2,750 a ton in the four months through the end of November, according to data from Sutton, Surrey-based ICIS, a petrochemical research company.

Output in Thailand may rise 8 percent to 3.7 million tons in 2012, according to Goldman Sachs. Indonesia will harvest 5.1 percent more at 3.1 million tons as supply in Malaysia remains little changed at 1 million tons, the bank said. The three countries account for 70 percent of production.

The 10-month slump in rubber prices is cutting costs for tiremakers, which account for about 60 percent of consumption. Bridgestone, the biggest manufacturer, will report a 35 percent jump in net income to 160.31 billion yen this year, according to the mean of 14 analyst estimates compiled by Bloomberg. Shares of the Tokyo-based company rallied 11 percent to 1,762 yen since the end of August and will reach 2,313 yen in 12 months, the average of 10 estimates shows.

Rubber Costs

Bridgestone is still facing “relatively high” costs for synthetic rubber and was unable to recoup all of the gain in raw-material prices last year, said Kaoru Tomizawa, a spokesman for the company in Tokyo.

Michelin, the second-largest tiremaker, will report a 3.9 percent decline in profit this year to 1.29 billion euros ($1.65 billion), still its second-highest earnings ever, according to the mean of 10 estimates. Shares of the Clermont Ferrand, France-based company fell 12 percent to 47.015 euros in the past year and will rebound to 66.36 euros in the next 12 months, the average of 14 projections shows. Fabrice Lenica, a spokesman, declined to comment on prices.

Debt Crisis

Sri Trang Agro-Industry Pcl (STA), Thailand’s biggest publicly traded rubber maker, may report a 1.9 percent rise in sales to 127.3 billion baht ($4 billion) this year, compared with a gain of almost 50 percent in 2011, according to the mean of 10 estimates. Shares of the Songkhla, Thailand-based company dropped 51 percent in the past year and will advance 9 percent to 20.05 baht in the next 12 months, analyst estimates show. Shares fell along with rubber prices after flood waters disrupted car production in Thailand, damping the demand outlook.

Growing demand for rubber may not be reflected by higher prices because of concern about Europe’s debt crisis and slowing growth in China, said Kitichai Sincharoenkul, executive director of Sri Trang. Sales may gain 15 percent to 1.15 million tons, he said, declining to comment on the outlook for profit.

“The period of high growth in natural rubber demand has ended,” said Zhao Cheng, a commodities analyst at Zhongcai Futures Co. in Chongqing, China. “The whole manufacturing sector is in contraction and natural rubber demand will certainly grow at a slower pace.”

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Richard Dobson at rdobson4@bloomberg.net

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