Futures have plunged 50 percent from a record in February 2011 as Europe struggled with its debt crisis and China expanded last quarter at its slowest pace in almost three years. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, according to industry data. Price declines will cut costs for tire makers such as Bridgestone Corp. (5108) and Michelin & Cie. and threaten farmer incomes in Thailand, the biggest producer and exporter.
“The market is still bearish because of Europe’s problems and as China’s economy slows,” said Kazunori Kokubo, managing director at Yutaka Shoji Singapore Pte., a commodities broker. The contract for October fell 3.9 percent today to 269.60 yen a kilogram ($3,395 a ton) on the Tokyo Commodity Exchange. That was the biggest drop for the most active contract since May 9.
The Chinese economy will expand 7.9 percent this quarter from a year earlier, according to a Bloomberg survey. That would be the sixth quarterly deceleration after an 8.1 percent expansion in the first three months. The drop in vehicle sales boosted inventories at automakers to the highest level in at least 16 months at the end of April, according to the China Association of Automobile Manufacturers.
“Prices will react negatively to lower demand,” said Pardey who has traded commodities since 1985. Demand from China may be unchanged from last year at 3.8 million tons, he said, lowering an earlier forecast for 2 percent to 3 percent growth.
Futures rebounded 3.9 percent in the first two days of this week after Premier Wen Jiabao said China will focus more on boosting growth. Goldman Sachs Group Inc. and Morgan Stanley predict interest rates will be cut to counter the slowdown. Germany will consider all ideas to spur Europe’s growth, Finance Minister Wolfgang Schaeuble said May 21.
Prices were also supported after Thailand, which represents 33 percent of world output, said on May 18 it plans to buy more than 10,000 tons on the Tokyo and Shanghai exchanges to boost prices. The country reaffirmed a plan to drive prices to 120 baht ($3.82) a kilogram by buying from farmers, while saying it intends to push rates to 180 baht next year, deputy farm minister Nattawut Saikuar said last month.
The country will work with Indonesia and Malaysia to tackle the slump, Nattawut said last week, without giving details. The three nations represent about 70 percent of global supply.
“The Thai policy will continue supporting prices, probably until the end of the year,” said Chaiwat Muenmee, analyst at Bangkok-based broker DS Futures Co. “It may take a bit of time for the government to implement the plans but it sounds serious in taking action.”
Natural rubber consumption is set to expand 3.4 percent to 11.3 million tons this year, while production climbs 3.2 percent also to 11.3 million tons, the International Rubber Study Group said at a conference in Singapore today. Output may increase to 11.9 million tons in 2013, with demand rising to 11.8 million tons, the organization said last month.
The surplus will probably widen to 469,000 tons this year and to 566,000 tons in 2013 from 50,000 tons in 2011, before falling to 194,000 tons in 2014 as price declines curb growth in supplies, said Prachaya from the London-based The Rubber Economist, who has studied the commodity for more than 30 years.
