Chinese firm CGTC suspends operations after making poor bets on rubber

A major supplier to tyre plants in China, Chongqing General Trading Chemical (CGTC), will cease execution of all unfinished contracts from the end of September 2019. CGTC chose to suspend business after it ran into liquidity problems, according to commodity market analysts.

Rubber futures prices in Tokyo and Shanghai plunged following market talks of CGTC’s problem, which may have leave lasting impacts on the industry.

Analysts lament that the uncertainty over CGTC’s decision could cause tyre producers in the Chinese market to look for alternative suppliers and later put pressure on prices in the international market, as CGTC is a major buyer of the commodity

“In the long term, the rubber trade environment here in China will be broken and re-established because of this,” said a China-based analyst who declined to be named.

At present, the benchmark Tokyo Commodities’ Exchange (TOCOM) rubber contract for March 2019 delivery has fallen around 3% since CGTC’s announcement in September, while the most-active rubber contract on the Shanghai Futures Exchange (SHFE), for January delivery, finished at US$1,604 per tonne after China’s National Day holiday period.