China rubber importers default on shipments as prices slide: Trade body

Thursday, 20 March 2014 00:00 - - {{hitsCtrl.values.hits}}

REUTERS: Some Chinese rubber importers have defaulted on shipments as tyre grade prices sank recently to multi-year lows, an industry body said on Wednesday, raising concerns of a further demand slowdown in the world’s top consumer.

There are no estimates yet on the quantities involved. Defaults by rubber importers in China are not uncommon, with buyers reneging on their commitments for an estimated 5,000 tons last year. The latest defaults come at a time of rising apprehension among investors and suppliers that China’s cooling economy will lead to a string of credit market defaults in industries such as real estate and steel. The defaults may push rubber prices lower and force leading producers Indonesia, Thailand and Malaysia to revive joint moves to try and stem the declines. “Some Chinese traders have defaulted on rubber contracts but there are no accurate estimates yet on the total quantity involved,” said Benson Lim, an executive of the ASEAN Rubber Business Council (ARBC). The ARBC groups producing and trading nations Cambodia, Indonesia, Malaysia, Singapore, Thailand and Vietnam. Producing nations are still scarred by memories of a wave of defaults by Chinese rubber buyers in the wake of the global economic crisis in 2008, where as much as 200,000 tons were estimated to be involved. After some cases in 2011, the ARBC decided to blacklist errant buyers and urged members to ignore requests for discounts. “No fresh default cases have been formally submitted to the Industry Discipline Committee of ARBC for black-listing purposes in the last one month,” said Lim, the Chairman of the panel. Speculation about defaults resurfaced recently after physical rubber contracts on the Singapore Commodity Exchange plunged in late February to their weakest since 2009, on concerns about demand from China, which accounts for about 35% of global consumption. Dealers said the market could assess the quantity once the ARBC received formal complaints from members hit by defaults. “Every year there is a lot. 5,000 tons is very normal,” said a dealer in China. “For this year, it’s very hard to say how much there will be. The year has just started and we don’t know how prices will go.” Even though rubber prices have rebounded slightly, gains have been capped by high inventories in China and Japan. Stocks in the closely watched bonded warehouses in the port of Qingdao have risen to around 340,000 tons from around 290,000 tons in January. And crude rubber inventories at Japanese ports stood at 22,056 tons by 10 March, up 2.8% percent from 10 days earlier, data from the Rubber Trade Association of Japan showed.