Tokyo rubber futures hit a seven-week high on Wednesday as a weaker yen encouraged buying, but arbitrage selling checked the gains. The benchmark rubber contract on the Tokyo Commodity Exchange for June delivery rose 1.8 yen to settle at 310.7 yen ($2.72) per kg.
It rose as high as 311.4 yen, the highest since November 7. A weaker yen inflates yen-based commodity futures prices, often luring speculative buying of rubber futures in Japan. "Now arbitrage players are back to take advantage of the premium in prices here against those in Singapore," a manager at a Japanese commodity brokerage said.
The Singapore market was closed for Christmas on Tuesday, allowing for a Tokyo/Singapore price differential as the June contract rose more than 2 percent in Japan, mainly on fund buying, but the absence of hedge selling also played a key role.
The manager said he was concerned about weather and shipping conditions in Indonesia, the second-biggest rubber producer after Thailand, from which China had stepped up rubber, imports. China, the world's biggest rubber consumer, often shops around for January and February cargoes ahead of the Lunar New Year festival. "The physical market could be tightened if something unexpected in Indonesia makes users shift their focus to Thailand," he said.
The dollar held near a seven-week high against the yen on Wednesday, as signs of a recovery in risk appetite were seen likely to support demand for risky carry trades. The dollar was at 114.17 yen, near on Monday's peak of 114.49 yen on electronic trading platform EBS that was the highest since November 7.
In other markets in the region, the Shanghai Futures Exchange will temporarily raise its minimum margin requirements on its five futures contract, including rubber, to 8 percent around the New Year's Day holiday in an effort to curb activity during the period.
In the physical market, rubber was quoted mostly unchanged as sluggish demand offset small rises on TOCOM. Physical trade was thin with most buyers on year-end holidays, traders said. "The market was very quiet as there were only a few Chinese buyers shopping around for January shipment," one trader said. Small lots of Indonesian SIR20 were sold at $1.10 per lb for prompt shipment to dealers in Singapore, an Indonesian trader said.
"We could not commit big lots due to falling supply as rains fall every day," he said. Floods were receding gradually in Thailand and Malaysia, the biggest and third-biggest producers, and supply should return to normal in January, traders said. But in Indonesia, the second-biggest producer, the rainy season is due to continue through April and tapping will be disrupted until it is over.
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