Rubber set for bear market as China slowdown worsens oversupply

Rubber is poised to enter a bear market as a slowdown in China, the world’s largest consumer, is worsening a global glut amid rising shipments from producers.

Futures have dropped 20 percent from a 16-month high reached June 1. The contract for January delivery fell 1.7 percent to 194.1 yen a kilogram ($1,564 a metric ton) on the Tokyo Commodity Exchange by 1:04 p.m. in Tokyo. A drop of 20 percent or more from this year’s closing peak will meet the common definition of a bear market.

China’s auto association cut its forecast for vehicle sales last month amid a stock-market rout that threatens to dent consumer sentiment. The final reading on a private Chinese factory index on Monday shrank more than expected, while an official gauge on Saturday slid to a five-month low, stoking concern that the worsening slowdown will hamper global trade.

“A global surplus is widening as demand in China shows no signs of picking up, and Thailand and Vietnam are boosting shipments regardless of low prices,” said Kazuhiko Saito, an analyst at Fujitomi Co., a broker in Tokyo.

The global rubber surplus may reach 303,000 tons this year, the International Rubber Study Group said by e-mail July 30, revising its January forecast of a 77,000-ton glut.

The Singapore-based IRSG estimates supply may grow 4.4 percent to 12.6 million tons this year, compared with last year’s 1.5 percent drop. Demand is forecast to rise 1.2 percent to 12.3 million tons, slower than last year’s 6.7 percent expansion, the group said.

Rubber supply may grow a further 2.9 percent in 2016 driven by the maturing of trees that were planted when prices were higher, according to the group.

Rubber exports by Thailand, the biggest producer, rose 1.3 percent from a year earlier to 1.72 million tons in the first six months of 2015, according to the nation’s commerce ministry. Shipments by Vietnam, the third-largest producer, expanded 16 percent to 531,000 tons in the first seven months, according to the nation’s general statistics office.

Rubber on the Shanghai Futures Exchange entered a bear market on July 8, and fell 2 percent to 12,170 yuan ($1,960) a ton Tuesday.