Hopes that top rubber consumer China will follow purchases from Thailand for its national reserves with more buying will likely be dashed by worries over slowing economic growth and soaring company and trader inventories.

Non-reserve inventories at three-month highs, a rise in domestic output and the end of seasonal demand suggest that more buying – both foreign and domestic – is off the cards for now, market participants said. That will drag on global prices for the commodity after tyre grades sank to multi-year lows in June on concerns over the international economy.

Chinese state reserves last week bought 54,000 tonnes of Thai RSS rubber at 20,400 yuan-21,500 yuan ($3,300-$3,500) per tonne that had been imported by Hainan Rubber Industry Group, Sinochem International Corporation, Founder Commodities and Anhui Technology Import and Export Co Ltd.

That amounts to 1.3 percent of the country’s estimated demand for this year and is well below the 200,000 tonnes the government was rumoured to have been looking for.

"Sentiment has turned negative,” said Gu Jiong, an analyst at Yutaka Shoji Co in Tokyo. “We’d heard that the government would keep buying rubber from next January but since that figure of 54,000 tonnes has come out, nobody has said anything.”

He added that high inventories at Shanghai warehouse indicated that the government would not need to bolster national reserves, which it keeps to ensure supply of the key industrial ingredient in times of shortage.
Officials at the China Rubber Industry Association declined to comment on the issue.

China, which accounts for 35 percent of global consumption, has often been seen as a bright spot in volatile global rubber markets.

China’s rubber demand is forecast at 4.18 million tonnes in 2013, up 9 percent year-on-year, according to the Association of Natural Rubber Producing Countries, but that could be revised down if the economy is still shaky.

China needs to sustain economic growth of 7.2 percent to ensure a stable job market, Premier Li Keqiang said in remarks published on Monday, one of the few times a top official has stated the minimum level of growth needed for employment.

The country’s economy is set to grow at its slackest pace in 23 years this year, at 7.5 percent, as its export sales falter on fragile global demand.

Source: Reuters