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TOCOM hits 5-week peak on higher oil prices, tight supply

Benchmark Tokyo rubber futures hit a five-week high on Tuesday, extending the rally into a sixth straight session, driven by stronger oil prices on expectations of extended supply cuts, as well as tight physical supplies at the TOCOM warehouses.

Oil prices rose on Tuesday, extending gains after a joint announcement by top producers - Saudi Arabia and Russia - to push for an extension of supply cuts until the end of March 2018 gained traction.

The Tokyo Commodity Exchange (TOCOM) rubber contract for October delivery finished up 8.6 yen, or 3.9 percent, at 228.0 yen ($2.01) per kg, marking the highest close since April 11.

"The benchmark soared following a surge in the nearest-month contract as investors rushed to make balance settlement ahead of its expiration next week amid low inventories at the TOCOM warehouses," a Tokyo-based dealer said.

The May contract, which is due to expire on May 25, surged 12.5 yen to close at 297.4 yen per kg.As of April 30, rubber inventories at TOCOM warehouses JRU-WRHSTX-TOT stood at 1,247 tonnes, down 85 percent from a year earlier, and the lowest since July 2010, a level low enough to pose a risk of sudden price swings.

The most-active rubber contract on the Shanghai futures exchange (SHFE) for September delivery climbed 250 yuan to finish at 13,925 yuan ($2,021.2) per tonne, rebounding from an eight-month low hit last week.

"Some investors who tried to take advantage of the arbitrage between prices on the TOCOM and the SHFE unwound their positions in panic as the TOCOM kept rising, which also helped to pull up the TOCOM prices," the dealer said.The front-month rubber contract on Singapore's SICOM exchange for June delivery last traded at 155.3 U.S. cents per kg, up 3.8 cents.  

($1 = 6.8895 Chinese yuan)