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Saturday, October 23, 2021

Rubber Poised for Bull Market as China’s Recovery Boosts Demand

Rubber in Tokyo was set to enter a bull market as futures jumped to a three-month high on signs China’s economy is regaining strength, boosting demand for the commodity used in tires.

Rubber for delivery in January advanced as much as 3.2 percent to 278 yen a kilogram (2,817 a metric ton) on the Tokyo Commodity Exchange, a 22 percent gain from this year’s lowest close for a most-active contract of 227.2 yen reached June 26.

Rising prices may boost costs for Bridgestone Corp., Michelin & Cie. and Goodyear Tire & Rubber Co., the biggest tiremakers, and help farmers in Thailand after the economy in the largest producer nation entered recession. Chinese manufacturing expanded this month after shrinking the most in almost a year in July, while output from European factories and services companies improved.

“Rubber resumed a rally as optimism grew that Europe’s economy may solidify its recovery and the Chinese growth may be accelerating, leading to an expansion in demand,” saidKazuhiko Saito, chief analyst at broker Fujitomi Co. in Tokyo.

The commodity, which fell into a bear market on April 1, will enter bull territory if it settles above 272.6 yen. It traded at 277 yen at 12:03 p.m. in Tokyo.

China accounts for 33 percent of global demand and tires represent 70 percent of natural-rubber consumption in the country, according to estimates from the Qingdao International Rubber Exchange Market.

A preliminary purchasing managers index for China by HSBC Holdings Plc and Markit Economics rose to 50.1 from 47.7, exceeding all 16 estimates in a Bloomberg News survey. A reading above 50 indicates expansion.

China Manufacturing

Premier Li Keqiang rolled out measures to support growth fueled by domestic demand in the world’s second-biggest economy after a two-quarter slowdown.

Rubber futures also drew support from the foreign exchange market as Japan’s currency traded near a three-week low against the dollar amid speculation the Federal Reserve will reduce bond buying as early as next month while Japan’s central bank will maintain unprecedented stimulus.

Declines in the yen, which has depreciated 5.5 percent against the dollar since rubber fell into a bear market, boost the appeal of futures denominated in Japanese currency.

Rubber for delivery in January rose 1.9 percent to 20,675 yuan ($3,379) a ton on the Shanghai Futures Exchange. Thai rubber free-on-board added 0.3 percent to 82.95 baht ($2.60) a kilogram on Aug. 23, according to the Rubber Research Institute of Thailand.

Source: Bloomberg

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