The benchmark Tokyo rubber futures August contract plunged 5.2 per cent on Thursday to close the main session at ¥269.4 per kg.
It finished near a seven-week low, having broken sharply down through its 50-day moving average around ¥292 and recording a seven-day losing streak that was its worst run since September 2014, according to Reuters.
And rubber’s move arguably is not yet stretched. The contract’s 14-day relative strength index, the commodity sector’s closely watched momentum gauge, finished the session at 35.2, not yet below the 30 mark that heralds the “oversold” threshold.
What’s going on?
Well, the pullback needs to be put in perspective. On January 31, rubber futures hit an intraday five-year high of ¥366.7, having more than doubled over just four months.
Helped by the broader market’s Trump-inspired “risk on” mood, rubber prices rallied as buoyant Chinese car sales data boosted expectations of greater tyre demand.
Additional momentum was provided by supply-side problems as heavy rainfall in Thailand, a big rubber producer, was seen crimping production.
But at the January peak, rubber’s 14-day RSI hit 79, into the “overbought” zone that is seen beginning at 70.
Triggering the new sell-off are signs rubber tree “tapping” in Thailand is picking up. And a more cautious view of the Chinese auto sector prompted the Shanghai rubber contract to recently breach the psychologically significant Rmb20,000 per tonne level, sparking selling elsewhere.
