China's rubber stocks fall

Rubber stocks in bonded warehouses in China's Qingdao port have fallen about a tenth from a peak in May, partly on reduced demand for the commodity as a loan collateral after a fraud investigation at the port, industry sources said. The drying up of rubber financing deals shows how a probe at Qingdao port, the world's seventh busiest, into suspected fraud related to metal financing has had an impact on other commodities used in a similar fashion.
Metals such as copper and zinc have been widely used for financing, a practice in which a commodity is pledged as collateral for a bank loan. But other commodities such as iron ore, soybeans and rubber have also been pulled into the trade, driving up stockpiles.
"After the investigation into metals, banks are more careful in granting financial support, so it's not like before," said a senior person involved in the rubber industry in Singapore.
The source, who declined to be named, said banks were being more selective and possibly more conservative. The market closely monitors rubber stocks in Qingdao, which account for the bulk of inventory in China, the world's biggest consumer, but are not disclosed publicly. Three dealers and analysts, who collect data from offices in Qingdao, estimated stocks of natural, synthetic and compound rubber slipped to 327,900 tonnes this week, from 362,200 tonnes in mid-May and around 341,000 tonnes in late June last year.
About 14 percent of the stock holding is compound rubber which dealers say is mostly tied to financing deals. Compound rubber is made of natural and synthetic rubber and used in tyres. A drop in Qingdao stocks is usually positive for rubber prices as it implies stronger demand in a global market which is in its fourth year of oversupply.
But a sustained move away from the use of rubber for financing could also lead to a bigger liquidation of stocks in the market and another price slump. Benchmark Japanese rubber futures have lost about a fifth of their value this year, though they have rebounded from a near five-year low of around 190 yen per kg. Further gains could hinge on stock levels in Qingdao, dealers said. The inventory of natural rubber in Qingdao, which represents 2 percent of global output, has fallen more than 3 percent to 261,000 tonnes since May, with a total value of about $530 million at current market prices.