Searing Heat in China Is Causing Havoc for Rubber Makers

Searing heat in China’s southwest is causing havoc in the world’s largest rubber futures market after forcing the nation’s top plantation owner to cease tapping.

The heatwave scorching Yunnan province, which supplies half the country’s natural rubber production, has created hazardous working conditions and raised the risk of pests, prompting Jiangcheng Rubber Co. to stop tapping this week.

As the local meteorological agency warns that temperatures are set to remain as high as 40 degrees Celsius in some parts of Yunnan, traders are looking for details of operations throughout the rest of the province as speculation swirls that its rubber industry group has ceased tapping at all plantations.

“Investors are very bullish on rubber prices in Shanghai amid a great deal of speculation that production in Yunnan will be massively reduced because of the hot weather,” said Jia Zheng, a portfolio manager at Shanghai Minghong Investment Co.

An official who answered a call to Yunnan Nongken Group, the state farm supervisor that oversees local tropical agricultural production and the Yunnan Natural Rubber Industry Group, declined to comment on the status of tapping. An official at the China Natural Rubber Association also declined to comment.

The disruption is a big deal for futures in Shanghai because only domestically produced rubber is normally used for physical settlement of the contracts, said Jia from Shanghai Minghong Investment.

Rubber has jumped 3.5% on the Shanghai Futures Exchange this week amid the heaviest trading since August on Thursday. Futures for September climbed to 12,280 yuan a metric ton on Friday, the highest in two months, before giving up gains to trade 0.5% lower by the midday break. The benchmark TSR20 contract on the Singapore Exchange has risen 1.3% this week.

China is a significant producer of natural rubber, with output of about 800,000 tons in 2016, though it’s the largest consumer and importer. The world produces about 14 million tons of natural rubber annually, according to the International Rubber Study Group.