Tokyo rubber rallies

Tokyo rubber futures rallied almost two percent on Friday as active short-covering emerged following recent steep losses, but gains were capped by growing views that the current tight supply situation will ease shortly.
Tokyo Commodity Exchange rubber prices rose sharply in the late afternoon after trading lower from the previous day for most of the session. Traders said several brokerage houses were detected buying in large lots in late trade, partly on views market sentiment will brighten after the expiry of the spot July contract on Tuesday.
Others said falling domestic rubber stocks could have attracted strong short-covering ahead of the weekend. But most traders believed the overall outlook was weak amid growing views that the market would see more supplies from Thailand and Malaysia in the short-term.
Benchmark December TOCOM rubber closed at 279.2 yen a kg, up 5.4 yen or 1.97 percent from Thursday. Active short-covering emerged after dipping to a session low of 270.6 yen. The key contract rose above the 100-day moving average of 276.9 yen, but most traders still believed the technical trend for rubber was heading downwards.
Traders were still keen to fill in a technical gap between 271.3 yen, the low reached on May 10, and 267.8 yen, the high hit on May 9. Traders said key TOCOM rubber also could fall towards the 200-day MA of 246.8 yen. "The market is concerned about the tightness in nearby supplies, but we are hearing that many supplies will head to Japan in August," said Shuji Sugata, assistant manager at Mitsubishi Corp Futures and Securities Ltd.
"We saw some support around 270 yen, but the topside of the market looks extremely weighted," Sugata said. The latest data from the Rubber Trade Association of Japan showed that crude rubber stocks held at private Japanese warehouses amounted to 11,679 tonnes as of July 10, down from 13,232 tonnes as of June 30. Inventories have fallen by about 36 percent since this year's peak of 18,315 tonnes marked on May 20.
Some tightness in rubber supply was noted in Indonesia, the world's second-largest producer after Thailand, as the wintering season continued in parts of Sumatra island. During the wintering season, rubber trees shed their leaves and latex output declines.
But worries about supplies were limited because of healthy production in other countries such as Thailand and Malaysia. In Thailand, benchmark RSS3 rubber sheet for August shipment was assessed around $2.35-$2.40 a kg free on board (FOB), compared with $2.40 on Thursday.
Tyre-grade Standard Thai Rubber, or STR20 block, for August shipment was also around $2.35-$2.40 a kg. Malaysia's tyre-grade SMR20 was little changed around $2.40. The price of Indonesia's tyre-grade SIR20 edged up to $2.26-$2.27 a kg FOB from around $2.20-$2.30 Thursday. In Shanghai, the most heavily traded October rubber contract was at 23,825 yuan per tonne, down 270 yuan compared with Thursday's settlement.