Rubber slumps 8.7% on weak China car sales

Bloomberg News (Tokyo) - Rubber slumped by the most in more than 10 months as selling accelerated on concern a decline in China car sales may weaken demand for the raw material used to make tires in the world's largest consumer.

The August-delivery contract lost as much as 8.7 per cent to settle at 416.5 yen a kilogram, the lowest level since December 30. That was the biggest fall since April 2010.

"It's panic selling," Sureerat Kunthongjun, an analyst at Agrow Enterprise Ltd, said by phone from Bangkok.

"Investors cashed out on fears that prices will fall further, while demand for Thai rubber has subsided."

Speculation

Officials are investigating the cause of the slump, Norikazu Takei, a Tocom spokesman said by phone from Tokyo. Rubber surged to a record 535.7 yen on February 18 on speculation supply will fall short of demand, led by China's vehicle sales.

Sales of passenger cars and minivans declined 0.4 per cent from a year earlier to 880,027 last month, the China Passenger Car Association said yesterday.

Sales dropped for the first time since at least September 2009 after fuel prices rose and the government ended incentives supporting vehicle sales.

"The sales decline raised concerns that rubber demand may slow," Kazunori Kokubo, general manager at Tokyo-based broker Yutaka Shoji Co, said yesterday by phone. High oil prices threaten global economic growth and may slow demand for tires, he added.

Car-sales growth in China will be about 10 per cent to 15 per cent this year, the China Association of Automobile Manufacturers said on January 10.

Total auto sales, which include cars, trucks and buses, jumped 32 per cent last year to 18.06 million, according to the group.

Market sentiment

"Chinese car sales may not grow as much as earlier expected, given rising fuel costs and the nation's monetary tightening," Hisaaki Tasaka, an analyst at broker ACE Koeki Co in Tokyo, said yesterday by phone.

China raised the sales-tax rate on small cars this year to 10 per cent from 7.5 per cent, phased out subsidies for vehicle trade-ins in rural areas, and increased retail gasoline and diesel prices on February 21.

Lower taxes helped automakers including General Motors Co and Volkswagen AG increase deliveries last year as overall vehicle sales surged 32 per cent in the world's largest auto market to a record 18.06 million.

Borrowing costs

"We believe market sentiment is changing due to rising gas prices, higher borrowing costs and overall tightening in the economy," Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific, said in a March 3 report.

Crude for April delivery traded at $104.15 a barrel in New York.

Yesterday, the contract gained to $105.44, the highest settlement since September 26, 2008, amid concern that unrest in the Middle East and North Africa may disrupt supplies.

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman.

In Saudi Arabia, the biggest oil producer in the Organisation of Petroleum Exporting Countries, websites have called for a nationwide "Day of Rage" on March 11 and March 20, according to Human Rights Watch.

In Shanghai, May-delivery rubber slumped by the 6 per cent daily limit to 36,035 yuan ($5,487) a tonne and closed at 36,205 yuan.

The physical price of Thai rubber fell 1.9 per cent to 177.50 baht ($5.84) a kilogram because buyers have slowed purchases awaiting lower prices, while traders continue releasing rubber from stockpiles amid concerns that prices will continue to fall further, according to the Rubber Research Institute of Thailand.

The price reached a record 198.30 baht on February 21.