Bloomberg News

Rubber Slumps to 14-Month Low on European Crisis, Thai Floods

October 20, 2011

Oct. 20 (Bloomberg) -- Rubber plunged to a 14-month low as a French-German split emerged over Europe’s rescue strategy and Thai floods reduced car production, deepening concern demand will weaken for the commodity used to make tires.

March-delivery rubber dropped 6.6 percent to close at 281.5 yen a kilogram ($3,669 a metric ton) on the Tokyo Commodity Exchange, the lowest level since August 2010.

French President Nicolas Sarkozy flew to Germany to join the talks as leaders assembled in Frankfurt in an effort to narrow divisions before an Oct. 23 summit. Europe’s leaders are looking for ways to maximize the firepower of the 440 billion- euro ($605.5 billion) European Financial Stability Facility as the region’s debt crisis threatens to engulf Italy and Spain.

“Risk aversion by investors increased after the split between Germany and France became clear,” Makiko Tsugata, a commodity analyst at research company Market Risk Advisory in Tokyo, said today by e-mail.

The European Union is the largest user of natural rubber after China, consuming 1.1 million tons last year, according to the Singapore-based International Rubber Study Group.

Asian stocks fell, oil dropped to a one-week low and copper declined for a fourth day after Luxembourg Prime Minister Jean- Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences. The Fed’s Beige Book survey released yesterday showed companies reported more doubt about the recovery.

‘Pretty Nervous’

“We remain pretty nervous about Europe’s crisis because we have yet to see a concrete safety-net being established for the financial system,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co.

In Shanghai, January-delivery rubber tumbled 4.4 percent to close at 25,445 yuan ($3,985) a ton.

In the cash market, the benchmark Thai rubber price dropped 1.2 percent to 125.6 baht ($4.05) a kilogram today, extending yesterday’s 2.3 percent decline, the Rubber Research Institute of Thailand said on its website. Prices were pressured by the suspension of operations by the Thailand units of Honda Motor Co. and Toyota Motor Corp., according to the group.

Japanese automakers are losing 6,000 units of production a day because of floods in Thailand, the Japan Automobile Manufacturers Association said. Nine carmakers were affected by the disaster, the group said today.

Japanese automakers produced 1.6 million vehicles in Thailand last year, accounting for more than 90 percent of total production in the country, according to the group.

“It’s difficult to say when production in Thailand will return to normal,” Toshiyuki Shiga, chairman of the automakers group, said at a briefing in Tokyo. “Japanese automakers are split between temporarily importing parts from other countries and waiting for the waters to subside.”

The Thai floods may disrupt auto production for at least a month and cost 23 billion yen in operating profit at Toyota, 11 billion yen at Honda Motor Co. and 6.25 billion yen at Nissan Motor Co., according to Kohei Takahashi, an analyst in Tokyo at JPMorgan Chase & Co.

--Editors: Thomas Kutty Abraham, Ovais Subhani

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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


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