Tokyo rubber futures may rise around 2 percent by the end of December and strengthen further in January, driven by purchases from main buyer China and a dry spell in Southeast Asia, a Reuters poll showed on Thursday.
The most active rubber contract on the Tokyo Commodity Exchange, currently May 2007, could fetch 206.25 yen ($1.77) per kg by the end of December, from 202.0 yen at end-November, according to a median forecast of 10 analysts and dealers polled by Reuters.
Forecasts ranged from 170 yen to 230 yen. The benchmark contract was forecast to trade at a median of 212.5 yen per kg by end-January, said the same dealers and analysts.
"Recent recovery in prices are understandable considering views that China could start buying next year before Lunar New Year holidays," said Shoji Sugata, assistant manager at Mitsubishi Corp.
Futures and Securities Ltd "Also production usually drops as producing countries enter wintering" said Sugata. During the dry wintering season, which normally begins in main producer Thailand in January, rubber trees shed leaves and latex output falls.
Wintering usually begins in Malaysia in late February, while in Indonesia it starts in March. "It's possible to see some downward correction after recent rallies," said Takashi Ogura, a manager at Kanetsu Asset Management.
"But the market appears to have factored in bearish factors like a huge build-up in Japanese stocks when the price fell to about 185 yen, so another sharp fall in prices is unlikely." "Sentiment could be lifted if Chinese buyers, who have been resting recently, actually start purchasing ahead of their New Year holidays," he said.
Japanese rubber futures, which set the tone for physical prices, have seen volatile trading in recent weeks. The benchmark contract tumbled to a one-year low of 185.5 yen in late November on fund selling before bouncing back on a technical correction, and recently due to news that Thailand and Indonesia plan to cut exports.
But Sugata of Mitsubishi Corp Futures and Securities remained cautious. "News about the plans by Thailand and Indonesia to cut production was a clear factor, but considering that the market is in counting, I don't think traders would be comfortable about holding large long positions in distant contracts," he said.
Thailand said it could suspend exports for a few weeks in December to prop up prices. Number-two producer Indonesia said it would slash exports by 10 percent next year.
"Prices are well supported now but TOCOM rubber is still fragile. People are watching how prices behave after the December contract expires later in the month," said Sugata. "Overall sentiment could be depressed again if a front-month contract comes under pressure again after the expiry," he said.
Tokyo rubber has lost 35 percent in value since spiking to a 26-year high of 324.5 yen in mid-June. The most active contract rose 1.2 yen per kg to 210.5 yen on Thursday.
On the physical front, a survey of six dealers and analysts expected Thai RSS3 rubber sheet to trade at a median of $1.71 a kg by the end of January, from $1.63 at end-December. Indonesia's SIR20 was forecast to rise to $1.61 in January, from $1.54 by the end of this month. Malaysia's SMR20 may rebound to $1.71 by the end of January, from $1.63 at the end of December.
"I think the downtrend should end. By the end of 2006, prices should head up and supply gradually fall," said Preppies Euranontat, manager of A.T.S. Rubber Co Ltd, adding that China's rubber imports may rise around 15 percent in 2007.
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