Tokyo Rubber Set for Best Month in 45 Years on China Car Outlook

(Bloomberg) -- Rubber futures in Tokyo headed for their biggest monthly surge in more than four decades on expectations that economic improvement in top consumer China will boost demand, while supplies may be disrupted due to adverse weather conditions.

China’s recovery from the coronavirus slump continued in the third quarter and showed signs of broadening in September, keeping the economy on track to be the world’s only major growth engine and validating Beijing’s aggressive approach in controlling the pandemic.

Chinese President Xi Jinping opened a meeting in Beijing this week to map out the next phase of economic development. Communist Party officials will also set goals for the next 15 years as Xi seeks to deliver on his vow for national rejuvenation by gaining the global lead in technology and other strategic industries.

“The gain in rubber futures is mostly to do with recovery hopes in China,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. It’s expected that maintaining a steady economic growth rate will be the priority for the Chinese leadership, he said.

Sentiment has also become bullish on expectations that a fresh wave of coronavirus infections in several countries could result in a strong demand for rubber gloves, Thiagarajan said.

Monthly Surge

Rubber futures in Tokyo have jumped 44% so far this month and are set for their biggest monthly advance since 1975. Prices in Singapore are poised for their best monthly increase since 2003, while Shanghai rubber is on track for the biggest monthly gain since 2006.

Demand for the commodity, mainly used to make tires, is likely to increase as automobile companies step up production. Vehicle sales in China climbed 13% in September from a year earlier.

Nissan Motor Co. plans to boost its output capacity in China by about 30% in 2021, Yomiuri newspaper reported. China is emerging as a bright spot for the Japanese automaker as the pandemic weighs on demand in the U.S. and Europe.

On the supply side, rubber output in China, the top consumer of the commodity, may slump 30% in 2020 from a year earlier as typhoons in Hainan and drought in Yunnan hurt trees, according to Du Hui, an analyst with Brilliant Futures.

Top rubber producers expect natural rubber output to fall for rest of 2020 and decline further into early 2021, according a statement by the International Tripartite Rubber Council last month.

©2020 Bloomberg L.P.

With assistance from Bloomberg