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TOCOM urges early settlement of April rubber contract amid low stocks
April 17, 2017 / 6:42 AM / 5 months ago

TOCOM urges early settlement of April rubber contract amid low stocks

* April contract open interest down 86.5 pct since end-March

* TOCOM-approved warehouse stocks at lowest since July 2010

* Still risk of price volatility as expiration approaches

By Yuka Obayashi

TOKYO, April 17 (Reuters) - Tokyo Commodity Exchange (TOCOM) has urged any investors with open positions in April rubber futures to settle contracts well before expiration on April 24, with exchange inventories sitting at a level low enough to pose a risk of sudden price swings.

Natural rubber stocks at TOCOM-approved warehouses have slipped to their lowest in more than six years after Thai floods in January cut output and as higher prices in China lured supplies out of Japan.

“We have called attention to our member brokers since late last month to encourage investors with no intention to take or make physical delivery to swiftly make balance settlement on the April contract if they still hold any positions,” said TOCOM spokeswoman Sayaka Sato.

Spurred in part by TOCOM’s prompting, April open interest - the number of positions still to be closed out - had shrunk to 144 lots by the close of business last Friday from as many as 1,066 lots as of March 31. Each lot is equal to 5 tonnes of rubber.

TOCOM’s spokeswoman said it was standard procedure to usher investors out of expiring contracts, but some brokers said it was a rare move that revealed concerns about a potential price swings.

An official at one commodity brokerage, speaking on condition of anonymity as he was not authorised to discuss the matter publicly, said TOCOM’s call on investors holding the April contract to make early settlements was “an unusual step”.

The action helped boost the price of the contract by as much as 15 percent in early April from end-March, although the price has since come down.

As of the latest stocks report, rubber inventories at TOCOM warehouses JRU-WRHSTX-TOT as of March 31 stood at 1,461 tonnes, down nearly four-fifths from a year earlier and the lowest since July 2010, reflecting the reduced Thai supply and the outflow of inventory to China.

That was the equivalent of 292 lots, well below the 1,066 lots of April open interest at the time.

With April open interest having dropped by 86.5 percent since then to the equivalent of 720 tonnes of supplies, the risk of warehouse supplies falling short of potential demand has diminished.

Yet there is still a risk of price volatility as expiration approaches and traders adjust remaining positions tied to April delivery, industry sources warned. The February and March contracts both saw sharp price swings just ahead of expiration.

“Unless open interest drops below 100 lots, you can’t say risk for investors missing delivery of physical supplies or price volatility has gone,” said an official at another broker, who declined to be named as he wasn’t authorised to speak to media.

Reporting by Yuka Obayashi; Editing by Kenneth Maxwell

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