—Clyde Russell is a Reuters market analyst. The views expressed are his own.—
By Clyde Russell
LAUNCESTON, Australia, May 30 (Reuters) - Natural rubber prices in Asia are likely to decline to at least last year’s lows after major producers abandoned attempts to restrict supply and inventories remain near historical highs.
Benchmark Tokyo rubber futures fell as much as 3.9 percent to 257 yen ($2.55) a kilogram on Thursday, while those in Shanghai dropped by as much as 3 percent. Tokyo futures are now about 23 percent below their 2013 peak, reached in February.
There appears little standing in the way of further declines after Thailand, the world’s biggest rubber producer and exporter, said its restriction on exports would end on May 31, acknowledging that the measure had little impact on pricing.
Thailand and other major regional producers Indonesia and Malaysia, who together account for 70 percent of global natural rubber exports, had agreed last year to cut shipments by a total of 300,000 tonnes from October to March this year.
Thailand then extended its curbs for another two months, hoping to hold up the price of rubber.
While the intervention did have initial success, with Tokyo futures rallying 60 percent from an almost three-year low in August last year to a 2013 peak of 337.8 yen on Feb. 6.
However, since then it’s been largely one-way traffic for rubber prices as the market fretted about high inventories in major importers China and Japan, and the lowering of economic growth forecasts in top-vehicle manufacturing nations such as China, the United States and Germany.
The main concern for Asian natural rubber producers is the high level of stockpiles.
Shanghai Futures Exchange warehouses had 114,932 tonnes of rubber as of May 24, a relatively small drop from the recent three-year high of 122,137 tonnes for the week to May 3.
Japan’s rubber stocks have also retreated slightly, dropping to 15,637 tonnes in the 10 days to May 10 from a six-year high of 16,094 tonnes in the period ended April 30.
Despite the small declines in inventories, they are at high enough levels to deter imports, even if the price remains weak.
Chinese imports of natural rubber were 227,320 tonnes in April, up 35.6 percent from the same month a year earlier but down 2.9 percent from March.
Year-to-date imports are still 33 percent higher, but the likelihood is that this will start to decline in coming months amid high inventories.
Rubber imports have also been expanding at more than double the pace of vehicle sales, which rose 13.2 percent in the first four months of the year from the same period in 2012.
The extra rubber imports aren’t being exported in the form of tyres either, which showed a 0.4 percent decline in April from the same month a year earlier to about 35.08 million units.
For the first four months of the year Chinese tyre exports grew only 2.7 percent from the same period in 2012.
A further bearish signal is the shape of the futures curve for Shanghai rubber <0#SNR:>, where the contango has steepened, suggesting traders expect more short-term price weakness.
The 10-month contract is currently trading at a 6.9 percent premium to the front-month.
In contrast, just prior to the rally of almost 25 percent between September 2012 and February this year, the premium of the 10-month contract over the front-month was just 2.1 percent.
There have also been reports of Chinese buyers defaulting on rubber cargoes after the recent decline in prices, even though volumes are believed to be small at around 10,000 tonnes.
Nonetheless, it’s symptomatic of buyers believing prices will fall further, especially as supply rises with the end of Thai export restrictions combining with increased production as the dry season finishes. ($1 = 100.9150 Japanese yen) (Editing by Muralikumar Anantharaman)