Monday, March 14, 2011

Where the rubber meets....the floor

Some of the news stories in the wake of the Japan earthquake/tsunami were about other markets besides oil, stocks and bonds. How about rubber? The TOCOM (Tokyo Commodities Exchange) is a rather active place and one of its big losers was rubber.
I could not quickly find a continuous contract but this March contract makes the point (yes, I know March in not the front month anymore but it has the longest history).

OK, we get why it cratered Monday. No auto production, lower demand for rubber. But look when this think peaked - Feb 21. How did rubber traders know the earthquake was coming? I know wheat traders keep track of weather but do rubber traders keep track of tectonic pressure buildups?

The day it started to fall was Feb 22 - the day Libya made itself known again. That is the same day stocks tanked, too. And oil shot higher. But rubber fell? Well, there was a reason:

Dateline 22 February: Key Tokyo rubber futures tumbled on Tuesday, pulled lower with a Shanghai market slide on concerns about demand from China, the world’s top rubber consumer.

OK, makes sense. But the next day  Shanghai turned around and never looked back. Rubber kept on falling.

Other than to point out just how nuts the markets are, the subtle takeaway is that another industrial commodity is heading lower no matter what else seems to be happening in other markets.

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