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TOCOM Plunges To 4-1/2 Low on Inventory, China’s Absence

Tokyo rubber futures dropped around 3 percent and sank to their weakest level in more than four years Monday (June 2) on lingering concerns over high inventory, although trading volumes were thin due to a holiday in main consumer China.

Global oversupply has dragged on the benchmark contract, which sets the tone for tyre rubber prices in Southeast Asia, pushing it down nearly 30 percent so far this year.

The Tokyo Commodity Exchange rubber contract for November delivery hit a low of 191.50 yen a kg, its lowest since September 2009. The contract finished 1.8 yen lower on Friday (May 30).

“The market is worried about the high stocks in China, Thailand and Vietnam. China is closed today, so many participants are liquidating their positions,” said an analyst in Tokyo. “This week, 180 yen will be the support level. Resistance is at 200 yen. We are very bearish.”

Shanghai rubber futures, which often influence TOCOM rubber, were closed on Monday (June 2) for a national holiday. Trading resumes on Tuesday (June 3).

Although rubber inventory in top consumer China has dropped in recent weeks to below 160,000 tonnes, stocks in the bonded warehouses remain high at around 360,000 tonnes, according to dealers’ estimates.

In addition to the high stocks in China, the market is also under pressure from Thailand’s plan to sell 200,000 tonnes of state rubber stocks, although a political crisis in the world’s top producer was likely to delay the sale.

Thailand’s military government sent thousands of troops and police into central Bangkok on Sunday (June 1), stifling any mass dissent against the army’s coup on May 22 and limiting protesters to small gatherings held mostly around shopping malls.

There were no estimates for inventory in Vietnam, but the country has overtaken Malaysia as the world’s third-largest producer, raising the risk of a price war.

Global supply is forecast to exceed demand by 241,000 tonnes in 2014, a fourth straight year of glut, according to the International Rubber Study Group, which rules out any near- term rebound in prices.

In other markets, Tokyo shares led Asia higher early on Monday (June 2), lifted by another closing record on Wall Street and upbeat China data, while the euro held recent gains against the dollar but remained shaky ahead of a closely watched European Central Bank meeting.

U.S. crude oil futures rose on Monday (June 2) after encouraging factory activity data from major buyer China, recouping some losses from profit taking in the previous session.

(Reuters, June 2, 2014)

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