Tokyo commodity exchange adds another rubber listing

The Tokyo Commodity Exchange on Tuesday listed a second natural rubber product in an effort to lure Chinese and Southeast Asian traders and investors.

Ribbed smoked sheet, or RSS, rubber is already the fourth most traded commodity on Tocom, behind gold, crude oil and platinum. The sheetlike, handmade natural rubber product accounted for 9% of all trading in 2017.

Now Tocom has listed technically specified rubber, or TSR. The machine-produced product is cheaper and of higher quality than RSS.By listing TSR, Tocom hopes to catch up to the Singapore Exchange, which trades both kinds of rubber. It expects the move to draw trading from Thailand, the world's largest natural rubber producer, and China, the world's largest natural rubber consumer.

Natural rubber futures markets are used to hedge against price fluctuations.

Japan's TSR imports surpassed those of RSS in 2002. In 2017, TSR accounted for 80% for Japan's natural rubber imports.

"Chinese traders and investors have shown an interest in Tocom-offered TSR futures," said Hideshi Matsunaga of Sunward Trading in Tokyo.

Many Japanese tire makers, however, source their natural rubber directly from plantations and producers with which they have long-term contracts. This way, the rubber they obtain is easily traceable.

"Sumitomo Rubber Industries has no plans to trade in futures," a company representative said.

Although Tocom has big hopes for TSR, it is unclear how much its rubber futures trading will expand, said Satoru Yoshida of the Rakuten Securities Economic Research Institute.

"With two listed products, it could result in market players' dispersion and lower trading volume," said Tsutomu Kosuge of Marketedge in Tokyo.

Meanwhile, Tocom President Takamichi Hamada is pinning his hopes on an increase in arbitrage trading. He said the amount of TSR in circulation has increased to nearly four times that of RSS.

"Natural rubber is the longest-established product on Tocom," he said, "and we will continue to support industrial infrastructure."

SGX-listed TSR is the benchmark for Indonesian natural rubber. "We hope Thai rubber producers and exporters will use our TSR prices as their benchmark," Hamada said. "We can also expect arbitrage trading utilizing the price difference with the Shanghai and Singapore bourses.

"An increase in arbitrage trading will boost Tocom's internationalization. We will also start dollar-denominated off-floor trading to meet strong demand. I think the service will gradually be accepted by customers," Hamada said.