THAILAND: Rubber futures soar on sharp rise in demand

Rubber futures prices on the Agricultural Futures Exchange of Thailand (Afet) have soared, with trading volume swelling up to 1,000 contracts a day since early this year on the back of overwhelming demand for rubber in the automobile industry, which far outstrips supply.

Speculation in rubber futures has surged, accounting for over half of total trading, as investors shift from slower derivatives and stock markets to the bullish agricultural futures market.

The Ribbed Smoked Rubber Sheet No 3 futures contract for August delivery on Friday (21 Jan. 2011) rose by Bt3.65 to close at Bt177.45 per kilogram. Volume was 398 contracts with open interest of 1,371 contracts. One contract represents 5,000 kilograms or five metric tonnes.

Key Tokyo and Shanghai rubber futures also hit record highs last week as speculators continued to bet on further market upside, due to strong demand and supply tightness.

"The average volume of rubber futures on Afet is now 1,000 contracts a day, up from an average of 600 contracts daily last year and 300-400 contracts daily in 2009," said Sureerat Khunthongjan, an analyst at Agro Enterprise Co.

The rubber futures price will stay on the upcycle over the next few months, helped by supply tightness, as the production of latex would be reduced during the upcoming hot season while demand for rubber from China to refill its depleted stocks is still high.

According to China's data, its auto sales last year rose by 34.8 per cent to 1.67 trillion yuan while auto output was up 31.9 per cent to 18.65 million cars.

Sureerat said many investors are showing an interest in Afet, especially in rubber futures, as they see more opportunity to score gains on Afet than on derivatives or stock markets.

"Many investors have walked in to ask for information and open a trading account with the company," she said.

The risk is also relatively lower with futures. Investors are required to deposit a minimum Bt22,000 per contract at a brokerage. If the rubber futures price swings to its ceiling or floor in each round, it would effect a loss or profit of up to Bt22,000 a contract.

In the case of derivatives, for gold futures as an example, investors would be required to deposit a minimum of about Bt60,000 per contract. They can take a profit or loss of more than Bt100,000 a contract.

The rubber futures price target is likely to further move in a range of Bt198-Bt200 per kilogram over the next few months, she added.

Pattana Agro Futures recommends taking profit by closing positions at the price range of Bt178-Bt180 for buy position holders and to trading sell at the same price range for sell position holders.(Syed Rashid Ali, Karachi, Pakistan)