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Rubber price set to bounceAnalysts cite escalating demand in China, rising oil prices in predicting recovery as investment By Claire Leow and Saijel Kishan
Natural rubber, which ranks as the worst commodity investment since May, is poised to recover on accelerating demand from China and rising oil prices. "Rubber may well have bottomed," said Michael Coleman, managing director at Aisling Analytics in Singapore, who helps run a $450 million commodity hedge fund that gained 31 percent through October. "Prices may rise on robust Chinese growth." Car and truck production in China, the world's biggest user of rubber, rose 25 percent this year. Demand in Asia and the increasing cost of oil-based, synthetic rubber might cause prices to jump 15 percent by mid-2007, said industry analysts including Toru Yaezawa at Goldman Sachs Group Inc. in Tokyo. Jim Rogers, creator of the Rogers International Commodity Index, said he "knows" prices will advance, declining to give a forecast. Rubber, used for everything from tires to gloves, plunged 36 percent in the past six months, the biggest drop in the Rogers index. By comparison, corn surged 53 percent. Rubber had increased more than fivefold since 2001 to a 27-year high in June. "I'm very bullish," said Roland Jansen, founder of Liechtenstein-based Mother Earth Investments AG, whose $100 million fund has gained 27 percent this year. He says rubber might rise as much as 30 percent and plans to increase his holdings. Rubber futures on the Tokyo Commodity Exchange, the benchmark for the commodity, rose to 324.5 yen ($2.81) a kilogram on June 13, the highest since 1979, for the most active contract. The commodity closed at 193.9 yen ($1.68) a kilogram on Dec. 1. A deteriorating U.S. economy and increasing rubber shipments from Thailand, the world's biggest producer, could curtail any revival. Some economists said U.S. demand for the material may slow along with auto sales. "U.S. consumer spending is going to be very weak next year, particularly on automobiles," Stephen Roach, Morgan Stanley's chief global economist, said in an interview Dec. 1. As "the housing recession continues to unfold over the next year or two in the U.S., that will take a further toll on job creation, income generation and undermine the spending power of the American consumer," he said in Beijing. Natural rubber accounts for 25 percent of Goodyear's raw material costs, which reached $5.5 billion in 2005. The company increased the price of tires in North America six times since the start of 2005, said Goodyear spokeswoman Tricia Ingraham. The increases have ranged between 4 percent and 8 percent. Prices of natural rubber often track crude oil, which reached a record $78.40 a barrel on the New York Mercantile Exchange on July 14. Oil slid 13 percent in the past six months. Both rubber and crude reached their 2006 lows in November. "Rubber prices will rise because economic growth in emerging countries, especially China, is so strong that global supply will lag behind," said Shoichi Inoue, general manager at Okachi & Co. in Tokyo, Japan's largest broker of rubber futures. Vehicle sales in China in the first 10 months of this year surpassed Japan's to become the second-largest market in the world after the U.S. China's rubber imports are up 18 percent this year, and "it looks like they're going to hold that kind of increase," said Greg Jagt, who has spent 11 years trading the commodity at Oakville, Canada-based Astlett Rubber Inc. Gains in palm oil prices could restrain rubber output. The vegetable oil, also a plantation crop, soared to its highest price in more than two years in November, encouraging companies to plant oil palms rather than rubber. Rogers said rubber is going to rise as part of a surge in raw materials prices. "I do know rubber prices will go higher during the course of the bull market," he said in an e-mail Nov. 28. Rogers has forecast a 15-year rally in raw material prices. He declined to give a specific forecast on rubber. |
