TOCOM rubber to stay near record high

Tokyo rubber futures are likely to stay near record high levels over the next two months, according to a Reuters poll, although there was a wide range of forecasts as some operators fear a correction in the futures market.
The sixth-month rubber contract on the Tokyo Commodity Exchange, currently July 2011, was forecast to be at 472.5 yen ($5.78) per kg by the end of February, according to the median forecast of 10 analysts and dealers polled in recent days.
The forecast was 1.4 percent above the actual closing price of the benchmark at the end of January of 466.0 yen but below the record high of 488.8 yen per kg hit earlier on Thursday. The range of forecasts was wide, with one dealer expecting prices to be as high as 510 yen, but one futures trader expecting prices to slump to 430 yen.
"Rubber futures should remain high over the next few months and speculative funds are likely to continue to pour money into the rubber market," said a Malaysian trader. The benchmark contrast was forecast to be at 482.5 yen per kg by the end of March, according to the poll Strong demand, from the tyre industry in particular, and tight supplies have pushed both futures and physical rubber to successive record highs in recent months.
Supply in Thailand, the world's biggest rubber producer and exporter, has dropped significantly because of flooding in its main rubber areas late last year. And rubber production will fall significantly in February and March as Thailand is entering its dry season, when rubber trees stop producing latex.
"Supply could drop as much as 60-80 percent in March and April when farmers stop tapping completely," said a trader in the main rubber trading town, Hat Yai. However, some dealers were wary of forecasting a continuing climb on TOCOM. Although tight supply provided the market with fundamental support, some players were uneasy about current levels and were reluctant to take aggressive buying positions.
"TOCOM rubber is likely to move sideways as investors are wary of the price levels. The market has already been rising because of the dry weather and tight supply, so that's not a fresh reason to go even higher," said Kazuhiko Saito of Fujitomi.
Physical rubber prices were expected to move in a similar way, staying at firm levels but perhaps not hitting repeated record highs, according to the poll. "Buyers have sent signals that they don't want to pay these high levels, so maybe prices should be adjusted to more realistic levels," said another trader at Hat Yai.
Thai RSS3 was expected to be at $5.73 per kg at the end of February, unchanged from the offer at the end of January. However, it was offered at a record high $5.90 per kg on Thursday. Malaysian SMR20 was forecast to be $5.60 per kg and Indonesian SIR20 at $5.55 per kg by the end of February, in both cases up slightly from around $5.50 per kg at the end of January.