SINGAPORE: Japanese rubber futures closed lower on Tuesday, tracking a drop in oil prices, although a weaker yen and higher physical prices limited the losses.

The Osaka Exchange (OSE) rubber contract for October delivery closed down 3.9 yen, or 1.19%, at 325 yen ($2.08) per kg.

The rubber contract on the Shanghai Futures Exchange (SHFE) for September delivery fell 50 yuan to finish at 14,725 yuan ($2,034.57) per metric ton.

Oil prices extended losses with investors anticipating lingering US inflation and higher interest rates depressing consumer and industrial demand.

Natural rubber often takes direction from oil prices as it competes for market share with synthetic rubber, which is made from crude oil.

The yen struggled on the weaker side of the 156 level against the dollar. A weaker currency makes yen-denominated assets more affordable to overseas buyers.

Despite the weather forecast predicting rain in Yunnan, China, actual rainfall has been minimal, leading to mild drought in Yunnan’s rubber producing areas, consultancy Huatai Futures said in a note.

Low arrivals of primary forms of natural rubber at various local markets in Thailand have been driving physical prices higher, said Jom Jacob, the chief analyst at India-based analysis firm What Next Rubber.

Thailand’s benchmark export-grade smoked rubber sheet (RSS3) hit 88.59 baht ($2.44) per kg on Tuesday, 0.6% higher than Monday.

However, investors in rubber futures may pull back at any time to take profit as “China’s stimulus-induced rally can fade out very soon” amid the lack of fresh positive news, Jacob added.

The front-month rubber contract on the Singapore Exchange’s SICOM platform for June delivery last traded at 170.2 US cents per kg, down 0.2%.