Rubber inventory rising as slowdown cuts demand

Rubber stockpiles in China's Qingdao port, the main shipment hub for the commodity, are starting to expand as demand slows in the world's largest consumer, said the Qingdao International Rubber Exchange Market, Bloomberg reported.

"Demand from downstream tire makers seems to be weak at the current stage, so destocking has slowed down," said exchange chairman Li Xiangou, who correctly forecast in March that high inventories may pressure prices.

Inventories in bonded warehouses at Qingdao port have stayed above 200,000 tons since November when they exceeded that level for the first time, Li said. Destocking occurred briefly in March and early April, but has slowed down since the beginning of this month, Li said. Inventories monitored by the SHFE fell 1,030 tons to 18,322 tons, the bourse said May 25.

Futures have plunged 50 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp, Goodyear Tire & Rubber Co (GT) and Michelin & Cie. Prices slumped as China, the biggest car market, expanded last quarter at its slowest pace in almost three years and Europe struggled to contain its debt crisis. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, says the China Association of Automobile Manufacturers.

Futures declined 1.4 percent to 268 yen a kilogram ($3,373 a metric ton) in Tokyo, falling for the first time in four days. The most-active contract in Shanghai fell 1.4 percent.

Rubber was the worst-performing commodity in the past year in the Bloomberg China Futures List index, falling 30 percent, according to Bloomberg data.

Increasing stockpiles in Qingdao add to supply concerns as inventories in Japan are also climbing, said Gu Jiong, analyst at Yutaka Shoji Co in Tokyo. Stores of crude material held at Japanese warehouses gained 2.9 percent to 15,198 tons as of May 10, according to the Rubber Trade Association of Japan.

About half the Qingdao inventories may be tied up in funding deals, said Li.

"Some companies are using rubber imports as collateral to bypass loan restrictions to get access to bank credit, which has led to persistently high port inventories," Li said. "Such practices exaggerate demand because these importers haul in shipments from Southeast Asia for which they don't have ready buyers." Thailand, Indonesia and Malaysia represent about 70 percent of global supply.