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China rubber stocks fall as port probe hits financing

* Rubber stocks at Qingdao port fall more than 9 pct fromMay peak-sources

* Drop partly linked to financing drying up after port fraudprobe

* Benchmark Tokyo futures down more than a fifth this year

By Lewa Pardomuan

SINGAPORE, June 24 (Reuters) – Rubber stocks in bondedwarehouses in China’s Qingdao port have fallen about a tenthfrom a peak in May, partly on reduced demand for the commodityas a loan collateral after a fraud investigation at the port,industry sources said.

The drying up of rubber financing deals shows how a probe atQingdao port, the world’s seventh busiest, into suspected fraudrelated to metal financing has had an impact on othercommodities used in a similar fashion.

Metals such as copper and zinc have been widely used forfinancing, a practice in which a commodity is pledged ascollateral for a bank loan. But other commodities such as ironore, soybeans and rubber have also been pulled into the trade,driving up stockpiles.

“After the investigation into metals, banks are more carefulin granting financial support, so it’s not like before,” said asenior person involved in the rubber industry in Singapore.

The source, who declined to be named, said banks were beingmore selective and possibly more conservative.

The market closely monitors rubber stocks in Qingdao, whichaccount for the bulk of inventory in China, the world’s biggestconsumer, but are not disclosed publicly.

Three dealers and analysts, who collect data from offices inQingdao, estimated stocks of natural, synthetic and compoundrubber slipped to 327,900 tonnes this week, from 362,200 tonnesin mid-May and around 341,000 tonnes in late June last year.

About 14 percent of the stock holding is compound rubberwhich dealers say is mostly tied to financing deals. Compoundrubber is made of natural and synthetic rubber and used intyres.

A drop in Qingdao stocks is usually positive for rubberprices as it implies stronger demand in a global market which isin its fourth year of oversupply.

But a sustained move away from the use of rubber forfinancing could also lead to a bigger liquidation of stocks inthe market and another price slump.

Benchmark Japanese rubber futures have lost about afifth of their value this year, though they have rebounded froma near five-year low of around 190 yen per kg. Further gainscould hinge on stock levels in Qingdao, dealers said.


Global banks including Standard Bank Group and apart-owned unit of Louis Dreyfus Corp,Singapore-listed GKE Corp have warned of potentiallosses from the Qingdao scandal. Other banks are reviewingmetals financing to some clients in China, while HSBC Holdings said it was assessing transactions on a case-by-casebasis.

As financing dries up, holders may move their rubber cargoesto reputable warehouses, possibly outside China, to avoid payingtaxes. But dealers also saw some real demand for compound rubberused in tyres, which accounts for about 60 percent of globalrubber consumption.

The inventory of natural rubber in Qingdao, which represents2 percent of global output, has fallen more than 3 percent to261,000 tonnes since May, with a total value of about $530million at current market prices.

But stocks of compound rubber have dropped far more, byabout a third since last month to 45,600 tonnes, less than halfof this year’s peak of 101,800 tonnes reached in January.

With domestic natural rubber trading at a discount of up to$200 a tonne to physical prices in Southeast Asia, speculatorsare reluctant to bring in more rubber into China.

“One of the reasons why stocks have fallen is because therehas been less rubber for financing,” said a China-based dealerwho trades tyre-grade rubber from Southeast Asia. “I expectstocks to keep falling.” (Additional reporting by Rujun Shen in SINGAPORE and OsamuTsukimori in Tokyo; Editing by Manolo Serapio Jr. and Ed Davies)

– Reuters

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