RUBBER MAY ADVANCE 26% ON SUPPLY SHORTAGE

Bloomberg

Rubber May Advance 26% on Supply Shortage, RBS Says (Update1)

June 24, 2010, 8:09 AM EDT

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By Claire Leow

June 24 (Bloomberg) -- Rubber prices may climb 26 percent next year as supplies lag behind demand, Royal Bank of Scotland Asia Securities (Singapore) Pte. said in an e-mailed report.

Natural rubber may average $4,500 a metric ton next year, up from $3,580 a ton year-to-date, as “heavy rainfall in southern Thailand has disrupted supply” and “inventory levels in China are worse than we expected,” said Nirgunan Tiruchelvam, a commodities analyst.

Rubber futures advanced 1.5 percent this year to 280.2 yen a kilogram in Tokyo, or $3,139 a metric ton. The most active contract climbed 3.6 percent last week on concern rain was affecting Thai crops.

Thailand is the world’s largest producer, and China the biggest consumer. About 70 percent of rubber, tapped as sap from trees, is used in the auto industry for tires.

“This disruption to supply is serious because Thailand accounts for 31 percent” of world production, Tiruchelvam said.

He reiterated his recommendation that investors buy GMG Global Ltd., a producer listed in Singapore, with a 12-month target of 27 Singapore cents. The shares have doubled to 22 cents this year.

--Editor: James Poole