China chases Thai rubber grade; tyre makers active

China snapped up Thai rubber grade after sellers slashed prices because of improving supply, but low volume suggested the world's largest consumer was still looking for a bargain, dealers said on Tuesday. Thai STR20 grade changed hands late on Monday at $4.32 to $4.33 a kg including freight for July/August shipment. Another Thai grade, the benchmark RSS3, was offered at below $5 a kg free-on-board, down from a record above $6 in February.
"I think China is probably testing the market. It doesn't buy rubber in huge quantity, but business with China is picking up after a quiet period in the last few weeks," said a dealer in Thailand's southern city of Hat Yai. "The weather has improved for quite a number of days," he said. An increase in China's domestic inventories could indicate the country was taking advantage of a drop in rubber prices, which was also triggered by a drop in Tokyo futures to their lowest since March. But China's lack of interest in other grades such as Indonesian SIR20 and Malaysian SMR20 could also suggest the outlook for the country's auto sector was still shaky.
Beijing in early 2009 issued a raft of stimulus measures, including tax incentives for small cars, which helped China surpass the United States as the world's top auto market. But it scaled back the incentives in 2010 and scrapped them completely at the beginning of this year. Automobile demand has been cooling down, with monthly sales in May declining for the first time in more than two years.
"Thailand has no choice but to sell rubber because they have plenty of stocks. This is the reason why physical prices keep falling," said a dealer in Indonesia's main growing island of Sumatra. "But on the other hand, tyre makers such as Bridgestone are still buying rubber," said the dealer, referring to Japan's largest tyre maker.
SIR20 was traded late on Monday at 191 to 192 US cents a lb ($4.21 to $4.23 a kg) for August shipment. SMR20 was sold at $4.35 a kg, but there were no details on the buyers. Natural rubber prices have tumbled nearly 30 percent from a record high due to uncertainties in the outlook for the global economy, monetary tightening in China, a devastating earthquake which hit auto production in Japan, and now rising supply in Thailand. Heavy rains have stopped in Thailand, the world's largest producer, allowing farmers to resume tapping.
WEEKAHEAD Dealers expected demand from China to persist next week, but a rebound in prices could turn them away from the physical market. "Everybody expects the market to come down because the weather is good in Thailand and production is back to normal," said a dealer in Singapore, who trades Indonesia and Malaysian grades.