TOCOM dives to nearly 21-month low on oversupply fears

Benchmark Tokyo rubber futures shed early gains to end lower on Monday, hitting their lowest since October 2016, weighed down by weaker oil prices and on concerns about oversupply.

"The rubber market is bearish amid worries about excess supply as producer countries are stepping up output after the dry wintering season," Hiroyuki Kikukawa, general manager of research, Nissan Securities said.

Rubber is tapped year-round, but latex output drops during the dry wintering season, when trees shed leaves. Wintering in Thailand and Malaysia lasts from around February to May.

The Tokyo Commodity Exchange (TOCOM) rubber contract for November delivery finished 1.9 yen lower or 1.1% at 171.5 yen (US$1.57) per kg. Earlier in the session, the contract hit the lowest since Oct 7, 2016 of 171.0 yen.

The TOCOM futures, which set the tone for rubber prices in Southeast Asia, have fallen about 15% over the past month, but they may stay under pressure, amid fears over global trade conflicts triggered by Trump administration, Kikukawa said.

Washington last month launched a national security investigation into car and truck imports which could lead to new tariffs on one of Japan's major export products to the United States.

"The tariff wars on cars could slow demand for vehicles and tyres," Kikukawa said.

"Once the TOCOM benchmark slides below a key 165 yen mark, it may quickly drop towards 150 yen," Kikukawa said.

On further downside, the dollar fell to a two-week low against the yen on Monday, as a latest flare-up in global trade concerns dented investor risk appetites and drove down U.S. yields.

Oil prices fell on Monday as traders factored in an expected 1 million barrels per day (bpd) output increase in the wake of an Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna last week.

The most active rubber contract on the Shanghai futures exchange for September delivery rose 70 yuan to finish at 10,470 yuan (US$1,603) per tonne.

The front-month rubber contract on Singapore's SICOM exchange for July delivery last traded at 134.7 U.S. cents per kg, down 0.7 cent.

(US$1 = 6.5324 Chinese yuan)

(US$1 = 109.5500 yen)