Indonesian rubber producers held on to stocks this week as prices tumbled to within striking distance of five-year lows reached in October, prompting sellers in the No 2 producer to exercise caution, dealers said on Wednesday. Benchmark Tokyo rubber futures, which set the tone for tyre-grade prices in Southeast Asia, fell 4 percent to a two-week low of 191.9 yen ($1.68) per kg on Wednesday.
In Singapore, rubber futures dropped more than 4 percent to 145 US cents per kg and those in Shanghai tumbled 5 percent. More evidence of weakness in China's economy as growth in its services sector slowed to a three-month low in October fuelled the sell-off in a market that has already been hit hard by excess supplies and slower demand from top consumer China.
"Most Indonesian producers don't want to sell anything because the market is so bad, so they're just staying on the sidelines," an Indonesia-based rubber trader said. Top tyre maker Bridgestone Corp bought Indonesian grade this week through dealers "because producers cannot follow the downward market trend at this moment", the trader said. Indonesian SIR20, a key rubber grade used by tyre makers, was sold to Bridgestone at around $1.56/kg on Monday and $1.53 on Tuesday, both for delivery in January, the trader said.
Other tyre makers Sumitomo Rubber Industries and Goodyear picked up smaller lots of SIR20 for December between $1.54 and $1.55/kg, said a Malaysian-based trader. Thailand's STR20 changed hands at $1.56-1.57/kg, while RSS3, another Thai grade, was sold around $1.66/kg, dealers said. Malaysia's SMR20 traded between $1.57-$1.58/kg on free-on-board basis, they said. There is caution in the market over new rules in China that could take effect in January and potentially hurt imports.
China's Standards Administration published a draft law in August that would require compound rubber to contain no more than 88 percent of natural rubber from January 1 next year. The draft is still open for comments but has been criticised by industry participants who said the new mixture, which lowers the natural rubber content from the current 95-99.5 percent, will be difficult to produce.
A Thailand-based dealer said Chinese buyers might still be keen to import compound rubber before the new rules are implemented, but will likely wait before booking shipments for the forward months. Exports of some contracted rubber cargoes from Indonesia were delayed last week after some farmers stopped tapping amid a slump in global prices. Prices in Tokyo and Singapore hit 173.8 yen and 137.40 US cents per kg last month respectively, their lowest since 2009.
The shortage of raw material was still prevalent in Medan, the provincial capital of North Sumatra, but prices of cup lumps have eased to around 17,000 rupiah ($1.40) per kg from 17,500 rupiah last week. A cup lump is a lump of rubber collected in tapping cups on trees.
"Last month it was very difficult to get raw materials because farmers didn't want to tap," said a Sumatran-based trader. "Because the prices of the raw material went up some farmers are coming back to tap." But in Malaysia, farmers have yet to return to rubber plantations. "Farmers are not motivated because it is not economical or sustainable for them to tap at the moment. Once they have left the trees, it's difficult for them to come back," the Malaysia-based trader said.
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