Bloomberg News

Record Low Rubber Stocks-to-Use Ratio May Lift Prices, RCMA Says

July 27, 2011

July 28 (Bloomberg) -- The global natural rubber stocks-to- use ratio has plunged to the lowest level ever as expanding demand shrinks inventories in China, potentially boosting prices, according to RCMA Commodities Asia Pte Ltd.

Global inventories are just enough to meet about a month’s demand compared with supplies for about 6.3 weeks a year earlier, Chief Executive Officer Chris Pardey said in an interview on July 26 in Singapore. Stockpiles in China’s port of Qingdao, which aren’t publicly available, have dropped to about 70,000 metric tons from 120,000 tons in April and May, Pardey said.

The low stock-to-use ratio may help rubber futures in Tokyo extend an almost 50 percent gain in the past year and increase costs for Bridgestone Corp., Michelin & Cie. and Goodyear Tire & Rubber Co., the top three tire makers. China, the largest automobile market, may consume 3.5 million tons of rubber this year, 6.1 percent more than a year earlier, the Association of Natural Rubber Producing Countries said last month.

“If you are confident that China will grow about 7 percent to 8 percent, then you are bullish rubber,” said Pardey, whose Singapore-based company may handle 650,000 tons of the commodity this year. The stock-to-use ratio is “at the level we have never seen before,” Pardey said.

Global usage was about 10 million tons in 2010, according to Oxford, England-based LMC International Ltd. RCMA, which trades about 6 percent of global natural-rubber output and has offices in Shanghai, Europe and the U.S.

Shanghai Inventories

Deliverable inventories monitored by the Shanghai Futures Exchange totaled 18,783 tons as of July 21, a 72 percent decline from the end of 2010. Chinese efforts to curb bank loans and increase borrowing costs reduced investors’ ability to hold large inventories, Pardey said.

“If I build in my expectations for the second quarter then I’m pretty much in line with the RCMA view,” Stephen Evans, secretary-general of the Singapore-based International Rubber Study Group, said in an e-mailed reply to Bloomberg News questions. He couldn’t confirm if the stocks-to-use ratio was at a record low. Evans also “broadly agrees” with the RCMA estimate about Qingdao stockpiles and didn’t provide data for stockpiles.

The world’s most-populous nation has raised interest rates five times since October and banks’ reserve ratio nine times to cool inflation. The Chinese economy expanded at a 9.5 percent pace in the second quarter from a year earlier, according to the National Bureau of Statistics.

‘Gauge of Supply’

A drop in Qingdao stockpiles to 70,000 tons would be “a significant decline from a month ago,” Hu Hui, an analyst at Guotai Junan Futures Co., said by phone from Shanghai. Qingdao’s inventory is a gauge for supply of imported rubber to tire producers in northern and eastern China, she said.

Stockpiles should normally have risen from June after Southeast Asian countries began to tap rubber trees, she said. China’s tire output in June rose 3.4 percent from May to 73.2 million units, “substantially better than April and May,” she said.

Rubber on the Shanghai Futures Exchange soared to 43,500 yuan ($6,751) a ton, the highest ever, on Feb. 9. Yen- denominated rubber futures traded at a record nine days later, climbing to 535.7 yen a kilogram ($6,890 per ton). Natural rubber for January delivery in Shanghai dropped 0.9 percent to 35,965 yuan a ton at 9:09 a.m. local time, and the Tokyo contract fell 1 percent to 391.9 yen a kilogram.

A supply deficit in natural rubber may be between 200,000 tons and 300,000 tons this year and may widen to 1 million tons by 2020, the International Rubber Study Group said June 8. Rubber prices in China have advanced 64 percent in the past 12 months, exceeding the 50 percent increase of the most active contract on the Tokyo Commodity Exchange.

‘Nobody Knows’

“Our state reserve guesstimate for China is 200,000 tons but nobody knows the real figure,” Pardey said. “There is no sign of reserve release,” he said.

Pardey, 48, began trading commodities at Cargill Inc. in Geneva and was a managing director for grains-trading in Asia at Noble Group Ltd. He also worked for Merrill Lynch & Co. and Barclays Capital before joining RCMA last year.

Michael Coleman and Doug King, partners and founders of the $1.2 billion Merchant Commodity Fund, own RCMA Commodities. The trading firm is separate from the hedge fund.

--With assistance from William Bi in Beijing and Ranjeetha Pakiam in Kuala Lumpur. Editors: Jarrett Banks, Thomas Kutty Abraham

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.


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