Reuters has reported that Chinese investors are stockpiling natural rubber to use as collateral for financing, actions the report said directly drove "prices to 10-month highs." 
Worse yet, the stockpiling could cause damage to that rubber, which can only be stored for limited periods.
"The financing deals, which have pushed rubber stocks in China to at least
three-year highs, are based on the expectation that China’s economy will grow faster this year and traders who are in such deals would benefit from a rise in prices of rubber or other assets they invest in using the loans,” Reuters said.
Rubber dealers estimated that some 325,000 tons of natural rubber was in warehouses in Qingdao, tied up as collateral. The traders are betting that the price of rubber will increase, making that collateral more valuable. At the same time, a downturn in domestic auto and tire demand could quash the value of the rubber.
“This is going to be a growing risk to the rubber market in the second and third quarters, which threatens to cut prices and undermine the value of banks’ collateral," said Gu Jiong, a rubber analyst at Yutaka Shoji Co in
Tokyo, told Reuters.
Rubber stocks in Qingdao are estimated to be some 661 million pounds, valued at around $1 billion, the report noted. The stockpile is the greatest since early 2010. NR can only be stored for six months or so before it “needs to be
re-tested for quality, especially for usage in making tires,” Reuters said. “Longer storage raises the risk for holders that the value of the material will have fallen as it deteriorates.”
But with a “typical financing deal,” bank loans are to be repaid over a three to nine month period. “Banks mitigate their risk by loaning the equivalent of only about half the collateral’s value,” Reuters reported. “That compares with non-perishable collateral such as metal, where banks loan more than 80% of the value.”
Total exposure of banks to the rubber stocks in Qingdao amounts to an estimated $260 million, according to Reuters’ calculations.
China produced and imported 340,000 tons of rubber more than it consumed in 2012, according to the Association of Natural Rubber Producing Countries. The China Rubber Industry Association forecasts a 5% increase in domestic rubber consumption for 2013, down from 2012’s 7% projected growth rate.
"Rubber consumption in China will still grow this year, but prices are under pressure because growth in production is going to be higher than growth in consumption," said Chen Ruibi, analyst at Shanghai CIFCO Futures, in the Reuters story.
