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People's Daily Online>>China Business

Rubber prices are unlikely to bounce back in the new year (2)

By Feiwen Rong (China Daily)

09:07, December 27, 2011

"Chinese tire makers are confronting problems such as tight cash flow, declining sales, overcapacity, pressure to lower tire prices and consolidation," said Sri Trang's Li. "Their situation will only improve if the whole economy turns up and the auto market recovers."

Shares in Giti Tire Corp, China's largest tire maker, have dropped 30 percent this year in Shanghai and those of Double Coin Holdings have plunged 42 percent as auto sales have slowed.

"Next year it's likely that supply will outstrip demand because of a slowdown in the global economy and the subsequent weak demand from the auto and tire sectors," said He Yihua, a trading manager at Okachi.

The increasing use of substitute synthetic rubber will also lead to reduced use of the natural product, said He. Synthetic rubber may have reduced natural rubber consumption by about 545,000 tons in 2011, he said.

"The weak fundamentals in the real estate market and other infrastructure sectors will also reduce the demand for tires in the logistics chain," according to Sri Trang's Li. "So far there's nothing to be optimistic about in 2012."

China's home prices posted their worst performance this year with more than half of the 70 biggest cities monitored in November recording declines after the government reiterated plans to maintain property curbs.

Inventories at bonded areas in Qingdao, the country's biggest spot-rubber trading hub, climbed to between 270,000 tons and 280,000 tons last month, signaling sluggish demand, Okachi's Tang said.

Natural rubber prices may fall further in the first quarter as the producing countries raise production, Tang said. Any "meaningful" rebound may appear in the second or the third quarter when producing countries may take measures to stem a decline in prices and a less restrictive monetary policy in China may stimulate the economy, said Tang.

Bloomberg News

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