Japanese rubber futures came off recent highs on Friday, but wariness over short supply from top producer Thailand kept the spot price pegged around a nine-year peak. Fund operators remained anxious because of costlier oil and surges in spot rubber prices due to a physical supply shortage and record low domestic warehouse stocks, traders said.
Prices backed off slightly but kept bullish, with the prompt July contract on the Tokyo Commodity Exchange holding above 170 yen per kg on Friday.
On Thursday, the contract reached 176.1 yen per kg, matching the high recorded on February 27, 1996. The scarcity in supplies is expected to support the spot price and keep the market in steep backwardation meaning higher cash prices against futures.
Falls in domestic rubber inventories to record lows encouraged fund buying, traders said. On Thursday, the Rubber Trade Association of Japan said crude rubber stocks at private Japanese warehouses reached a record low of 10,367 tonnes as of June 20, down 2 percent from June 10 and more than 40 percent from the start of the year. The inventory data is available from 1962. The June 20 figure became the new low after it dropped below the 10,431 tonnes recorded in April 1963, an official at the association said.
Despite the record low stocks, there were no disruptions at Japanese end-users, as they were believed to be securing their own supplies without drawing heavily from warehouses, traders said.
"Since about two or three years ago, end-users have been buying directly from producers and keeping their own stocks," a trader at a Japanese brokerage said.
Rubber supplies usually fall from around February, when the wintering dry season starts in southern Thailand. During the season, rubber trees shed leaves and latex output declines.
Production usually returns to normal by May, but for this year buyers were not receiving enough shipments. Japan buys about 60 percent of its imports from Thailand, traders said.
"The strength in the spot contract is leading overall prices higher and it looks like we'll see more gains due to the currently very strong market fundamentals," said Hisaaki Tasaki, market analyst at Ace Koeki. Tasaki said prices could correct lower, but the market was more likely to test the distant December TOCOM rubber contract towards last year's high of 166.3 yen reached on March 15.
The December contract was trading at 159.1 yen, down 3.0 yen or 1.85 percent from Thursday after peaking at a session high of 163.9 yen.
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