Oil Report

Tokyo rubber sinks, supply tightness supports

TOKYO, Feb 6 (Reuters) - Tokyo rubber futures tumbled 2 percent to a roughly one-week low on Wednesday dragged down by a broad decline in oil, gold and other commodities, but supply tightness helped them recoup some of their early losses.

A Tokyo trader said Wednesday’s decline stemmed from losses in other financial markets, and not from factors distinctive to rubber itself.

“Rubber cannot, in itself, go against the tide moving global financial markets,” he said.

The benchmark rubber contract for July delivery <0#JRU:> on the Tokyo Commodity Exchange fell by 5.8 yen or about 2 percent to a trough of 289.3 yen per kg, the lowest level since Jan. 28.

It recovered a touch to close the morning session at 291 yen.

Elsewhere, TOCOM gold futures fell, with the lead December contract <0#JAU:> finishing the morning session at 3,065 yen per gram, down 42 yen.

Oil prices extended their decline on Wednesday as poor U.S. economic data reinforced fears that the world’s largest economy is on the brink of a recession.

U.S. light crude for March delivery CLc1 hovered just above $88 a barrel.

The latest decline came after the release of an index measuring activity in the U.S. services sector, which posted a sharp fall in January.

Rubber prices often benefit from high crude oil prices because investors believe expensive oil will encourage a shift to natural rubber from synthetic rubber, a petroleum product.

The yen rose across the board on Wednesday, as a steep sell-off in equity markets hurt risk appetite, prompting investors to unwind carry trades.

Tokyo's Nikkei share average .N225 plummeted 4.1 percent, following a steep drop on Wall Street the previous day.

The dollar edged down 0.2 percent against the yen to 106.55 yen JPY=.

Physical rubber supplies were tight due to seasonal factors, helping to prop up prices.

“Raw material supplies are very tight, especially from Indonesia,” an Asian trader said.

He added that he had heard that rubber inventories in China, the top buyer, were low, and that the country needed to buy prompt cargoes.

The Tokyo-based trader said he had not heard the report, but added that Chinese data was often sketchy.

Some traders said trading in the physical market is likely to be slow for the rest of this week with China starting the week-long Lunar New Year holiday, which is also celebrated in many other parts of Asia.

It is a market holiday in China, South Korea and Taiwan on Wednesday.

One trader in Japan said trading could still take place, as the holiday no longer had much influence on activity.

Supplies are expected to be tight due to seasonal factors with Thailand, the world’s biggest producer, and Malaysia, the third, in the midst of the wintering dry season when latex output falls.

Indonesia, the No. 2 producer, is in the rainy season when tapping is frequently disrupted. (Reporting by Miho Yoshikawa)