Indonesian rubber sold at record, surpasses Thai grade

Thursday, 23 December 2010 00:35 - - {{hitsCtrl.values.hits}}

Reuters: Indonesian rubber changed hands at historic highs of $4.872 a kg for nearby shipment, surpassing the Thai RSS3 grade by a few cents for the first time in years after incessant rains curbed supply, dealers said on Tuesday.

Shippers bought SIR20 at high prices late on Monday because of fears they might have to default on shipments if they could not meet contracts after heavy rains disrupted tapping in Indonesia, the world’s second-largest producer after Thailand.

SIR20 for January/February shipment traded at 219, 220 and 221 U.S. cents a pound. Thai RSS3, normally the most expensive grade in the region, was sold at $4.85 a kg to Japan’s largest tyre maker, Bridgestone Corp .

“They need the rubber or otherwise they will become defaulters. So they have to cover their short position at whatever prices,” said a dealer in Singapore, who was involved in the SIR20 deals.

“There are still problems with January/February shipments. We also sold some SMR20 at about $4.87 yesterday,” said the dealer, referring to the Malaysian grade.

Prices of RSS3, SIR20 and SMR20 are all at record highs.

Tight supply in Indonesia has delayed the shipment of at least 10,000 tonnes of rubber for nearby delivery, boosting chances of a further rally in Tokyo futures, dealers said last week. [ID:nL3E6ND0A9]

“There are delays but so far I don’t hear reports about defaults. Hopefully, it’s not going to happen,” said a dealer in Jakarta.

Other dealers said the delays would be resolved soon, with shippers aggressively covering their shorts. A combination of heavy rains and dry weather in Thailand, Indonesia and Malaysia has hit production of tyre-grade rubber, forcing processors to fight over raw material. Last month, a shipment of 50,000 tonnes of Thai rubber was delayed after chest-high floods disrupted tapping. [ID:nSGE6A20C0]

Supply disruptions prompted buying from speculators, which sent Tokyo rubber futures to a series of all time highs above 400 yen a kg.

The most active rubber contract on Tokyo Commodity Exchange, JRUc6, settled 4.3 yen a kg higher at 413.1 yen, having struck a record at 413.8 yen

Physical prices extended gains on Tuesday and were offered at record highs in Southeast Asia. “There’s a shortage in SIR20, so that’s why the price is even higher than RSS3. I am not sure this the first time in history or not, but I haven’t seen this in many many years,” said a dealer in Thailand’s southern city of Hat Yai.

“Supply is still very tight because the rain is still around,” he added.

Thailand’s Department of Disaster Prevention and Mitigation said on Tuesday there is no flood warning for southern Thailand in the next two weeks. The latest warning was for Dec. 13-16 but there was no significant fresh flooding during the period.

Rubber production in Thailand will fall by about 30,000 tonnes a year for the next six years because of damage from floods. Thailand’s annual production is about 3 million tonnes.