Rubber prices in Tokyo, the world’s biggest futures market for the material, have fallen 20% since reaching a record on June 12. Supply has risen after companies such as PT Astra Agro Lestari planted more rubber trees in Indonesia and Malaysia to keep up with Chinese consumption. Now, China is taking steps, such as last week’s interest rate increase, to slow its economy.
“The price of natural rubber may fall, and that eases concerns among investors,” said Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund that holds Bridgestone shares. “Bridgestone’s earnings prospects are bright.”
Shares of Tokyo-based Bridgestone, the world’s second- largest tiremaker, have climbed 15% in the past month while stock in Clermont-Ferrand, France-based Michelin, the biggest, has climbed 16%. Akron-based Goodyear, the biggest U.S. tiremaker, also has rallied 16%.
At their 2006 lows, set late last month, the stocks had fallen 11%, 14 % and 39%, respectively, over the past year.
Rubber production this year will rise 9% in Malaysia, 6% in Vietnam and 3.9% in Indonesia, contributing to a record annual supply, according to Prachaya Jumpasut, an analyst at the London-based International Rubber Study Group. The six largest rubber producers – Thailand, Indonesia, Malaysia, Vietnam, India and Sri Lanka – account for more than 90% of the world’s natural rubber.
Supply in Thailand will gain 1.7%, while India will boost output 9.9% and Sri Lanka 8%, he said.
Total production is likely to grow this year by 4.5% to 9.1 million tons, outstripping demand and further swelling stockpiles, which stood at 2.3 million tons at the end of 2005.
Hidde Smit, secretary-general of the study group, warned in an interview in June that producers needed to curb the expansion of rubber plantations to prevent a glut.
Benchmark natural rubber futures prices on the Tokyo Commodities Exchange this month fell below 250 yen ($2.15) a kilogram for the first time since March.
Further declines in crude oil prices would also help tire companies because oil is used to produce synthetic rubber. Crude futures have fallen 7% since setting a record July 14 in New York futures trading. Synthetic rubber’s market share will be little changed in 2006 at about 58%, according to the rubber study group.
The price of rubber, still 48% higher than a year ago, may have further to fall as economic growth in China, the world’s largest rubber user, slows.
China, which consumes about 20% of world output, reported slower growth in industrial output and fixed-asset investments in July as policies aimed at curbing the economy took hold.
The country is taking further steps. Its central bank last week raised benchmark lending and deposit rates simultaneously for the first time in two years. The economy, the world’s fourth largest, grew 11.3% in the second quarter from a year earlier, the most in more than a decade.
The country will still need to import 1.5 million tons of natural rubber this year to plug a domestic shortfall, up 7% on 2005, according to Jumpasut at the rubber study group.
Still, the growth of Chinese rubber imports has slowed from 22% in 2004. Additional production will push futures prices down, according to Wang Weibo, a rubber trader at Tonglian Futures Co. in Shanghai, China’s largest natural rubber futures brokerage by volume.
Stock investors are betting on it. Shares of the 10 largest tiremakers by market value have risen in the past month, led by a 33% gain in Finland’s Nokian Renkaat Oyj, the biggest Nordic tiremaker. The average gain for the 10 stocks was 14%.
“Natural rubber prices will decline further as supply catches up,” Wang said. “Tiremakers’ raw material costs will decline.”
