Rubber prices tumbled from a two-year high in Shanghai, despite data signalling a tighter market, on talk that Chinese regulators had opened an inquiry into the market.
While details of the probe were sketchy - some speculation said that the China Securities Regulatory Commission was looking into a single dealer with a large position in rubber, although other talk was that several companies were involved – fears over the investigation depressed prices in many commodities.
Rubber - which in Shanghai early deals hit 26,725 yuan ($3,718), its highest since July 2008 – fell back to 25,230 yuan, a loss of nearly 5% on the day.
Tokyo rubber futures, which had set a four-month high of 302.60 yen a kilogramme for a benchmark lot, currently the February contract, retreated to close down 1.1% at 293.60 yen a kilogramme.
Production downgrade
The price falls came despite a warning by Indonesia that its rubber production may fall this year from last year's 2.44m tonnes rather than rise 160,000 tonnes, as earlier expected.
The country, the world's second-bigger producer of natural rubber, said output may fall to 2.4m tonnes because of heavy rains which have disrupted tapping of trees.
The rains, blamed on the La Nina weather pattern, have also hampered the country's cocoa and palm oil production.
Demand upgrade
Furthermore, the International Rubber Study Group lifted by 114,000 tonnes, to 13.3m tonnes, its forecast for natural rubber demand this year, following a brisk start.
The consumption of all rubber, including synthetic rubber, grew by an "impressive" 11.2% to 23.1m tonnes in the year to the end of June, driven by "recovery in the demand for vehicles and tyres as well as inventory rebuilding during the first half of the year", the group said.
The demand is to keep growing, reaching 23.9m tonnes in calendar 2010, and 25.5m tonnes next year.
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