Tokyo rubber futures reversed losses to close higher on Thursday, bolstered by late short covering mainly by day traders as the dollar recovered against the yen. The April 2008 rubber futures contract on the Tokyo Commodity Exchange ended at 273.9 yen per kg, up 2.3 yen or 0.9 percent from the previous close.
The TOCOM market is closed on Friday for a national holiday and resumes on Monday. Analysts said the dollar/yen rate is currently the key factor determining which way the TOCOM market goes.
"The Tokyo market failed to react to crude oil's rally to a record high yesterday, and that showed how vulnerable it was to the yen's strength," said a manager at a Japanese commodity brokerage. "Commodity fund managers are now defensive." Aggressive fund buying had fuelled the recent run-up in the key rubber contract to a 16-month high of 312.2 yen on November 7.
As of Wednesday's close, open interest in TOCOM rubber futures fell to 36,577 lots the lowest since January 2005. That suggested unwinding of long positions by investment funds. The dollar was up to 108.79 yen, pulling back from low of 108.29 yen as the yen's rally on risk aversion has lost some steam and Japanese shares held their ground despite a slide on Wall St overnight.
The dollar hit the lowest in more than two years of 108.25 yen on Wednesday. Crude oil was steady above $97 a barrel on Thursday after touching a record of $99.29 the previous day.
Oil prices fell nearly a dollar on Wednesday after US government data showed a big increase in crude stoockpiles at a key storage hub. In the physical rubber market, prices were mostly unchanged as volatility in the TOCOM market sent most players to the sidelines.
"The market is uncertain because of supply, which depends on the weather, also because the Tokyo market is very volatile, tracking ups and downs of currencies," said a trader in Thailand's Hat Yai rubber hub. On Wednesday, Thailand's tyre grade RSS3 was sold to a tyre maker at $2.42 a kg for February, resulting in a fall in offers to that level, traders said.
Indonesia's SIR20 was traded overnight at 104.50 and 105 US cents per pound ($2.30 and $2.31 a kg) for January shipment, but many sellers were reluctant to sell nearby cargoes.
Sellers in Indonesia, the world's second largest producer after Thailand, scrambled for supplies after incessant rains disrupted tap in several parts of the growing island of Sumatra, dealers said. The wet spell came in the North Sumatra province, one of Indonesia's main rubber-growing areas, disrupting tapping.
North Sumatra's rubber output fell 2.97 percent to 382,420.43 tonnes in January-September this year, from the same period last year due to erratic weather, according to data from Indonesia Rubber Association. The physical market may stay tight due also partly to a decline in exports from India, which is instead set to import more rubber than expected.
India's rubber exports are likely to fall 55 percent in 2007/08 due to a drop in production and a rise in domestic consumption, a senior official with the state-run Rubber Board said on Wednesday.