Giant Chinese Rubber Trader Halts Deals, Sparking Price Rout 2019-10-11

Rubber prices spiraled 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 used in car and truck tires.

 
 

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 biggest rubber trader in 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’s hurt the trees needed to produce latex. Futures in Tokyo, Singapore and Shanghai are more than 60% off their peak 8 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.

 

An official who answered the call to the general office of Chongqing General Trading Chemical in the western Chinese city of Chongqing declined to comment.

“The company imported too much rubber and faced liquidity issues,” Tong Changzheng, a Shanghai-based analyst at Citic Futures Co., said in a phone interview. The company is China’s biggest rubber trader, importing 1.6 million tons a year, he said. The Asian nation bought 2.6 million tons of rubber last year.

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, Gu Jiong, an analyst at Tokyo-based brokerage Yutaka Shoji, said on Thursday. The slump could stoke buying interest from dealers and tiremakers, especially with futures trading below physicals, he said.

Source: Bloomberg (www.bloomberg.com)

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