TOCOM snaps 4-day rally on position adjustment

Benchmark Tokyo rubber futures shed early gains to snap a four-day rally on Friday, as investors adjusted positions ahead of the weekend, but still posted a weekly increase of more than six percent.

The Tokyo Commodity Exchange (TOCOM) rubber contract for December delivery finished down 4.4 yen, or 2.1 percent, at 201.0 yen ($1.8) per kg. Earlier in the session, it hit a one-month high of 206.9 yen.

For the week, it rose 6.2 percent, but was down for a fifth consecutive month and lost about 24 percent in the first half of the year.

"Despite today's slide due to position adjustments, it seems that the market has hit the bottom as proven by a chart," said Jiong Gu, analyst, Yutaka Shoji Co.

TOCOM rubber may rise into a range of 223.10-236.70 yen per kg in three months, as suggested by its wave pattern and a Fibonacci retracement analysis.

The most-active rubber contract on the Shanghai futures exchange for September delivery dropped 10 yuan to finish at 13,335 yuan ($1,967) per tonne.

"Shanghai also recovered the key 13,000 yuan level this week on expectations for stronger tyre demand in China," Gu said.

On an upside, the Tokyo market has shifted from backwardation to contango as inventories at TOCOM warehouses started rising, signalling a healthy market condition, Gu said.

In contango, longer-dated futures are more expensive than near-term contracts.

Rubber inventories at TOCOM warehouses stood at 2,251 tonnes, as of June 20, up from 1,932 tonnes 10 days ago, according to the bourse. The stock level has recovered since hitting its lowest since 2010 earlier this year.

Rubber inventories in warehouses monitored by the Shanghai Futures Exchange rose 0.3 percent from previous Friday, the exchange said.

The front-month rubber contract on Singapore's SICOM exchange for July delivery last traded at 150.4 U.S. cents per kg, down 1.1 cents.

($1 = 6.7788 Chinese yuan) ($1 = 112.0200 yen)