Rubber may drop ‘sharply’ through March, Goldman Sachs says

THAILAND – Rubber may decline “sharply” through March as the end of the low-production season in Southeast Asia approaches and demand stays weak in China, the biggest consumer, said Goldman Sachs Group Inc.

Prices have been “artificially inflated” after Thailand, the top producer, announced a programme to buy the material above market rates to support farmers and as users boosted stockpiles before the Lunar New Year, it said.

Futures retreated from the highest level in almost three months today, snapping a five-day rally. The most active contract advanced 13.3 % last week, the biggest such gain since 2008. Goldman said this month it was maintaining its forecast for commodities to gain 15 % this year with rallies in copper, oil and gold as economic growth in the U.S. and Asia offset the impact of a European recession.

“With current prices soaring in an environment where actual demand is not particularly strong, we think prices could drop sharply,” said analysts led by Yuichiro Isayama.

The market will switch to a 413,000-MT surplus in 2012 from an 87,000-tonne shortage last year, the bank said, keeping to its prediction last month. The glut may increase to 551,000 tonnes in 2013, it said. Futures will drop as low as 240 yen (US$3.12) a kg (2.2 lb) this year, the lowest since November 2009, according to the median estimate in a Bloomberg survey of 14 analysts and traders.

China Demand

The June-delivery contract fell 2.7 % to settle at 306 yen on the Tokyo Commodity Exchange. The most-active month climbed to 315.8 yen on Jan. 20, the highest since Oct. 28.

Demand in China fell last year to 3.59 million tonnes from 3.63 million tonnes in 2010, the bank said.

China’s gross domestic product increased 8.9 % in the last three months of 2011 from a year earlier, the fourth straight quarterly slowdown and the weakest pace in 10 quarters. Growth may drop to below 8 % this quarter, according to estimates from UBS AG, Nomura Holdings Inc. and Societe Generale SA, as export demand cools further and the government maintains its campaign to rein in housing costs.

The Thai government plans to spend 17 B baht (US$541 million) to buy rubber at above-market rates to boost prices, Deputy Prime Minister Kittiratt Na-Ranong said Jan. 17.

Source: Thai Rubber Association