Rubber prices spiralled lower across Asia this week on news that a major state-owned trader in China, the top consuming country, has ceased all physical trading of the commodity.
Cash prices in Thailand have plunged to their lowest since 2016, while futures traded in Tokyo are on course for their worst week since early August. The slump came after Chongqing General Trading Chemical Co, the largest commodity trading firm in western China, stopped dealing in rubber and asked suppliers last Friday to terminate executions of all unfinished contracts.
“It’s creating short-term panic in the market,” said Yium Tavarolit, a 20-year veteran of the industry and former head of the International Rubber Consortium. “This will likely further delay the revival of rubber prices.”
The industry has been buffeted by a series of headwinds, from oversupply that pushed producers to limit exports in an effort to prop up prices, to drought, flood and disease that has hurt the trees needed to produce latex. Futures prices in Tokyo, Singapore and Shanghai are more than 60% off their peak reached eight years ago.
Chongqing General Trading Chemical, a unit of a massive state-owned consortium that operates and trades everything from department stores, hotels and automobiles and has over 100,000 employees, issued a notice last Friday disclosing the trading halt, according to people familiar with the situation.
The impact on shipments is likely to last until the end of the year, and market participants are waiting to see how the move will affect Thai producers, said Gu Jiong, an analyst at Tokyo-based brokerage Yutaka Shoji.
The slump could stoke buying interest from dealers and tyremakers, especially with futures trading below physical rubber prices, he said.