Tokyo rubber futures fell more than 1 percent on Friday, reversing early gains and ending a three-day rising run with poor technical sentiment and increasing physical supply outweighing support from high oil prices.
The benchmark rubber contract on the Tokyo Commodity Exchange (TOCOM) for November delivery fell 4.5 yen, or 1.7 percent, to settle at 265.5 yen ($2.16). The benchmark rose to an intra-day high at 272.4 yen, tracking the rise in oil prices before profit-taking set in.
Oil prices neared $71 a barrel on Thursday on concerns about low fuel production from US oil refineries and violence in the Middle East. Surging oil prices usually provide support for rubber futures as expensive oil encourages the use of natural instead of synthetic rubber, a petrochemical product.
Dealers said they expected TOCOM prices to fall a little further next week as technical sentiment remained bearish after prices failed several times to break above the key resistance of 300 yen.
But TOCOM prices were not expected to fall sharply as demand for rubber remained strong, they said. "Prices may fall and find support at 265 yen and 260 yen," one dealer said. In the physical market, rubber prices fell on expectations of increased supply from Thailand and Malaysia.
"Prices will probably drop further because more supply will come onto the market over the next few weeks, but I don't expect a sharp fall as demand is still there," said a trader in Hat Yai, Thailand's rubber trading hub. The weather has improved in Thailand, the world's biggest rubber producer, and Malaysia, the third largest, allowing farmers to tap more latex.
In Indonesia, the second-largest producer, supply was still limited as a prolonged dry spell in the Medan region of northern Sumatra cut latex output, traders said.
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