Nov. 2 (Bloomberg) -- Chinese buyers have canceled or delayed some natural rubber shipments after prices slumped and demand weakened, according to traders at Okachi & Co. and Tower Commodities Co.
Prices tumbled 20 percent in the past three months on concern the Europe debt crisis may derail the global recovery. Tightened China liquidity and weak conditions might cause prices to drop further, leading to more cancellations, said Lizhi Tang, president of the Okachi & Co.’s greater China region.
The amount “isn’t large” now, he said without elaborating. Okachi has the largest open interest in natural rubber futures on the Tokyo Commodity Exchange, according to Tang.
China is the largest rubber consumer, accounting for about 34 percent of global demand last year. China’s auto manufacturing association cut its 2011 sales forecast for the second time in three months on Oct. 11, saying that deliveries are expected to grow less than 5 percent.
“Most of the shipments were bought at the average $4,600-$4,700 a ton at the height of the market, and spot rubber prices have fallen quickly to below $3800 a ton now,” Tang said. The “situation might get worse if prices keep declining.”
April-delivery rubber lost as much as 3.4 percent to 287.8 yen a kilogram ($3,680 a metric ton), the lowest level since Oct. 26, before trading at 293 yen on the Tokyo Commodity Exchange. The price fell for a third day.
Buyers normally pay about 10 percent of the order value as a down payment, so when a price slump more than erases this amount, some buyers have no incentive to stick to the contract, said Forrest Hu, founder of Tower Commodities Co. and a former trader at Louis Dreyfus Commodity Co. Tower commodities trades rubber.
--Feiwen Rong. Editors: Richard Dobson, Jarrett Banks
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