Phon Tongmak, a rubber tree farmer (back), rows a boat in floodwaters in his rubber plantation with his friend at Cha-uat district in Nakhon Si Thammarat province, southern Thailand, January 18, 2017. Photo: Reuters/Surapan Boonthanom

First, Chinese speculators came for coking coal and iron ore, catapulting markets into orbit. Now, they’re carpetbagging a different commodity, pushing it to its fastest price rise in more than a quarter of a century – rubber.

Traders say Chinese investors are punting on global rubber demand surging on revived growth in China stoking the auto sector, allied with hope a President US Trump stimulus will stoke the US economy. The world’s biggest tire maker, Bridgestone, has already warned it may have to lift product prices.

These bets are likely to continue once China is fully back in business after the Lunar New Year break, traders say. They come just as output in key Southeast Asia producer countries enters a seasonal drop – exacerbated by recent floods in Thailand – and have made rubber an even hotter property than top-demand commodities like lead and steel.

Asia benchmark rubber futures at the Tokyo Commodity Exchange (TOCOM) hit their highest levels in more than five years last week and climbed 26% in January before giving up some gains during the Chinese New Year holiday – their biggest monthly leap since at least 1990. That’s already stoked interest in new production in places like India.

“There was a round of speculation on rubber in China in January,” said Quan Shuwen, an analyst at the Shanghai office of Japanese brokerage Okachi. “Supplies are quite tight, demand from downstream enterprises is gradually getting stronger in China, which will very likely further push up prices.”

Over the past four months, rubber prices have more than doubled in a wild swing propelled by China’s cash-rich investors, underlining their ability to move markets after similar surges in commodities like coking coal and iron ore.

While uncertainties shroud what President Trump plans to do to boost the US economy, the bet isn’t a blind wager as far as China is concerned.

Beijing recently renewed incentives to boost demand for smaller, environment-friendly cars in what is the world’s biggest auto market. It also introduced tighter rules on how much freight trucks can carry, a move likely to increase demand for trucks – and their tires.

Prices high for months

The rally has been further fuelled by concerns over output in Thailand, the world’s biggest rubber producer. After flash floods that affected the country’s main rubber growing region, the Rubber Authority of Thailand estimated it would cut the country’s rubber output in 2017 by 7.6%.

Thai rubber exporters say they have enough of the commodity stockpiled to ensure only minimal disruption to scheduled shipments. Still supply concerns linger, dealers said, as the industry moves into its ‘wintering season’ – the dry winter season from February to May in Thailand, Malaysia and Indonesia when output drops.

“With wintering season approaching and healthy tyre demand in China, prices will likely stay at high levels until March or April,” said Shinichi Kato, president of rubber material dealer Shinichi Kato Office.

The spike in rubber prices hasn’t gone unnoticed by farmers elsewhere in Asia.

In India, industry officials told Reuters rubber output is likely to jump 15% in 2017-18, its highest in four years, as the higher prices prompt farmers to start tapping trees they had previously abandoned.

The rally, however, is bad news for tire makers as it eats into profits and trims margins – a hit that tire makers in Japan and South Korea warn that they may pass on to customers.

“It’s our basic policy to raise tyre prices to reflect higher raw material costs, but decisions will be made after taking market conditions, including rivals’ moves, into account,” said Fusamaro Iijima, a Bridgestone spokesman.

At a major Korean tire maker, a person with knowledge of the matter – speaking on condition of anonymity – said raw materials price increases are typically reflected in end-product prices two or three months down the line.

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