Japanese rubber extends losses as funds take profits after short squeeze

SHANGHAI: Japanese rubber futures fell for a third consecutive session on Friday on profit-taking after a short squeeze and arbitrage-driven rally this week, although the contract still posted a weekly gain as higher oil prices capped losses.

The Osaka Exchange (OSE) rubber contract for February delivery was down 2.9 yen, or 0.67percent, to close at 431 yen (USD2.80) per kg. The contract, however, gained 1.38percent this week.

The rubber contract on the Shanghai Futures Exchange (SHFE) for January delivery fell 285 yuan, or 1.45 percent, to 19,315 yuan (USD2,879.10) per metric ton.

The most active October butadiene rubber contract on the SHFE lost 560 yuan, or 3.53percent, to 15,295 yuan per metric ton. The market diverged from fundamentals during the rally, and current declines are largely a result of funds taking profit after a squeeze on short positions and arbitrage players, a Singapore-based trader said. The market is expected to enter a consolidation phase before adjusting back toward fundamentals, said the trader.

Japan’s Nikkei slumped on Friday on renewed concerns over US rate hikes and a surge in oil prices that fuelled inflation worries. Oil prices fell, but both major benchmarks are on track to end the week above USD100 a barrel for the first time since mid-May, as increasing attacks along key shipping routes in the Middle East fuel fears of a prolonged disruption to supplies.

Natural rubber often takes direction from oil prices as it competes for market share with synthetic rubber, which is made from crude oil. The front-month rubber contract on Singapore Exchange’s SICOM platform for November delivery last traded at 242.2 US cents per kg, down 0.9percent, as of 0700 GMT.