Rubber slump likely to lift cost of tires, gloves

Bangkok, Feb 28 (Bloomberg): Rubber's 15 per cent slump in about a week may be the prelude to rallies to a record high, driving up the cost of everything from Michelin tires to surgical gloves. Harvests in Thailand, Indonesia and Malaysia, the biggest growers, will fail to meet demand for a second year in 2011, leaving stockpiles equal to 69 days of demand, the lowest in more than a decade, Goldman Sachs Group Inc. estimates. Prices may advance as much as 32 per cent to 605 yen a kilogram ($7,407 a metric ton) by December, according to the median estimate in a Bloomberg survey of 10 analysts and traders. Bridgestone Corp and Michelin & Cie, the world's biggest tire makers, are boosting prices by as much as 15 per cent, and Top Glove Corp, the largest rubber-glove producer, is charging more. The rally in rubber mirrors the 93 per cent advance in the S&P GSCI Agriculture Index since its June low caused by floods from Canada to Australia and droughts in China and Russia. While that's bad news for consumers, it means "the best price I've ever seen," said Saneh Panpipat, 54, who tends about 2,000 rai (320 hectares) of rubber trees in southern Thailand, the country's main growing region. "My staff and many farmers who were unable to afford their own cars now have brand-new Toyota or Isuzu pickup trucks." Heavier-than-usual rain in Southeast Asia, which supplies 70 per cent of the world's rubber, disrupted harvests in the past several months. While farmers will increase supply by 9 per cent this year, they won't eliminate shortages, as demand advances to its highest level since at least 2000, according to the team of Goldman analysts, led by Tokyo-based Yuichiro Isayama. Benchmark futures on the Tokyo Commodity Exchange jumped more than fourfold since reaching a six-year low of 99.8 yen in December 2008 as the global recession curbed demand. That compares with a more-than-doubling in the S&P GSCI Index of commodities and a 58 per cent advance in the MSCI World Index of equities. Treasuries returned about 3.7 per cent, a Bank of America Merrill Lynch index shows. Shortages should mean prices as high as 1,200 yen by the end of the year, said Masayo Kondo, president of Tokyo-based Commodity Intelligence Ltd, the most bullish participant in the Bloomberg survey. The price finished at 457.6 yen in after-hours trading February 25, and settled at 466.4 yen today. Kondo correctly predicted prices would reach a record in September, when futures markets were anticipating gains of no more than 6 per cent through this month. The 15 per cent decline in rubber prices since reaching a record 535.7 yen February 18 has reflected the slump across commodities and equity markets amid riots in North Africa and the Middle East and the toppling of autocratic leaders in Egypt and Tunisia. Crude oil traded in New York reached $100 a barrel for the first time in more than two years February 23 as the MSCI World Index had its biggest weekly rout since November. "Commodities used for industrial production including base metals and rubber may be vulnerable" if crude keeps rising, said Tomomichi Akuta, an analyst at Mitsubishi UFJ Research & Consulting Co in Tokyo.