SHANGHAI: Japanese rubber futures rose on Wednesday, recouping from losses in the previous session, as high butadiene rubber prices and tight synthetic rubber supply prompted manufacturers to substitute towards natural rubber.
The Osaka Exchange (OSE) rubber contract for September delivery closed trade 1.4 yen, or 0.37percent, higher at 382 yen (USD2.41) per kg. The rubber contract on the Shanghai Futures Exchange (SHFE) for May delivery fell 25 yuan, or 0.15percent, to 16,415 yuan (USD2,388.02) per metric ton.
The most-active May butadiene rubber contract on the SHFE slipped by 760 yuan, or 4.33percent, to 16,785 yuan per ton. As butadiene rubber prices continue to stay above natural rubber prices, the profit margins of synthetic rubber producers have been drastically squeezed, resulting in losses, Guoyuan Futures Research said in a note on WeChat. The capacity utilisation rates of China’s synthetic rubber industry had dropped from the average rate of around 80percent to around 50percent end-March, Guoyuan Futures Research said.
The decline in industry operating rates cannot solely be attributed to short-term factory maintenance shutdowns.
It is also due to systemic production cuts resulting from an imbalance of profit distribution across the supply chain, said Zhang Xiao, an analyst from Guoyuan Futures Research.
Tighter supply of butadiene rubber would push natural rubber prices up as product manufacturers substitute synthetic rubber for natural rubber.
Oil tumbled more than 3percent on Wednesday, reversing earlier gains as persistent Middle East volatility unnerved markets even amid reports the US-Israeli war with Iran could be winding down.
The front-month rubber contract on Singapore Exchange’s SICOM platform for May delivery last traded at 199.4 US cents per kg, up 1.6percent, of 0706 GMT.