Rubber prices are unlikely to bounce back in the new year

BEIJING - Demand for natural rubber in China, the world's largest consumer, may slow in 2012 and prices may extend the biggest annual decline in three years as economic growth and auto sales ease, said an executive at Okachi & Co.

"There's growing concern that the whole economic situation will face downward pressure in the first quarter next year because of weak economies in both emerging and developed countries," said Lizhi Tang, president of Okachi's greater China region. Okachi is the largest broker for rubber contracts on the Tokyo Commodity Exchange.

Slower demand may extend a 33 percent decline in prices this year, the biggest drop since 2008, amid higher supply from producing countries including Thailand, and as the sovereign debt crisis in Europe deepens and growth in the United States slows. China accounted for about 34 percent of global demand last year, according to the International Rubber Study Group.

"Growth in China's demand for natural rubber next year is poised to slow down amid sluggish new auto sales," Li Shiqiang, general manager at Sri Trang (Shanghai) Ltd, a unit of Thailand's largest publicly traded rubber exporter, said on Dec 22.

China's economy is forecast to grow 8.5 percent next year, the least in 11 years, according to the Organization for Economic Cooperation and Development. Vehicle sales may rise by the least in 13 years in 2011, plunging from last year's record 32 percent, according to the China Association of Automobile Manufacturers, as inflation, higher interest rates and the end of a two-year stimulus plan deter purchases.

The June-delivery rubber contract dropped to as low as 275.1 yen a kilogram ($3,527 a metric ton) before trading at 276.6 yen on the Tokyo Commodity Exchange.