Rubber Inventory Rising in China as Slowdown Cuts Demand
Rubber stockpiles in China’s Qingdao port, the main shipment hub for the commodity used in tires, are starting to expand as demand slows in the world’s largest consumer, said the Qingdao International Rubber Exchange Market.
“Demand from downstream tire makers seems to be weak at the current stage, so destocking has slowed down,” said exchange chairman Li Xiangou, who correctly forecast in March that high inventories may pressure prices.
Futures have plunged 50 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp. (5108), Goodyear Tire & Rubber Co. (GT) and Michelin & Cie. Prices slumped as China, the biggest car market, expanded last quarter at its slowest pace in almost three years and Europe struggled to contain its debt crisis. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, says the China Association of Automobile Manufacturers.
The market “has yet to come to terms with a scenario where Chinese demand is diminishing faster than anticipated,” said Wang Chen, head of research at commodity hedge-fund Hangzhou Dunhe Investment Co. “Weak auto sales in China, especially falling sales of trucks, coincide with a lackluster market in the U.S. and Europe, and may lead to a glut of the commodity that hasn’t yet been reflected in prices.”
Futures were little changed at 271.70 yen a kilogram ($3,420 a metric ton) at today’s close in Tokyo, after falling as much as 2.2 percent, the most in a week. The most-active contract in Shanghai fell 1.3 percent.
Rubber was the worst-performing commodity in the past year in the Bloomberg China Futures List index, falling about 30 percent, according to Bloomberg data.
Inventories in bonded warehouses at Qingdao port have stayed above 200,000 tons since November when they exceeded that level for the first time, Li said. Destocking occurred briefly in March and early April, but has slowed down since the beginning of this month, Li said. Inventories monitored by the SHFE fell 1,030 tons to 18,322 tons, the bourse said May 25.
The Chinese economy may grow 8.2 percent this year, the slowest pace since 1999, a Bloomberg survey showed, as Europe’s debt crisis curbs exports and manufacturing. The country has no plan to introduce stimulus measures on the scale unleashed during the global credit crisis, according to the nation’s state-run Xinhua News Agency. In 2008, policy makers unveiled a fiscal stimulus of 4 trillion yuan ($586 billion at the time).
Increasing stockpiles in Qingdao add to supply concerns as inventories in Japan are also climbing, said Gu Jiong, analyst at Yutaka Shoji Co. in Tokyo. Stores of crude material held at Japanese warehouses gained 2.9 percent to 15,198 tons as of May 10, according to the Rubber Trade Association of Japan.
About half of the Qingdao inventories may be tied up in funding deals, said Li.
“Some companies are using rubber imports as collateral to bypass loan restrictions to get access to bank credit, which has led to persistently high port inventories,” Li said. “Such practices exaggerate demand because these importers haul in shipments from Southeast Asia for which they don’t have ready buyers.” Thailand, Indonesia and Malaysia represent about 70 percent of global supply.
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