Record demand for autos in China, the world's largest market, and the biggest increase in Japanese vehicle production in three decades means tiremakers will make the most sales ever, reigniting a rally in rubber prices.

China's vehicle sales exceeded the combined global total of General Motors Co. and Volkswagen AG, the world's top two automakers, in the first half, and Japanese output more than doubled in three months as factories reopened after the March earthquake. Tire demand will shrink rubber stockpiles to 12 percent of use in 2012, a four-year low, estimates Citigroup Inc. Prices may jump 18 percent to $5 a kilogram (2.2 pounds) by Dec. 31, a Bloomberg survey of 15 analysts and traders shows.

Expanding vehicle sales in China and other emerging markets will compensate for weakening demand in developed economies roiled by debt crises, giving carmakers their best year ever, according to JD Power & Associates, a research company. Bridgestone Corp., the biggest tiremaker, has more orders than it can handle, eroding rubber inventories just as rains delay harvesting in Thailand, the largest producer.

"There are pessimistic views about economies as concerns grow over Europe's debt crisis, but we cannot ignore the fact that auto sales in emerging markets are still expanding," said Tetsu Emori, the Tokyo-based chief fund manager at Astmax Co., who helps manage about $400 million of assets. "Demand for the commodity will be influenced more by emerging economies than mature markets."

Eoin Treacy's view Tokyo listed rubber prices hit an accelerated peak near ¥535 in February, pulled back sharply, ranged below the 200-day MA from May and broke down once more two weeks ago. A sustained move above ¥400 would be required to break the progression of lower rally highs and suggest demand is returning to medium-term dominance. The weakness of rubber prices is a boon for tyre manufacturers. (Also see Comment of the Day on June 30th).


The Topix Rubber Products Index retains its mild upward bias and rallied impressively this week. A sustained move below 1200 would be required to question medium-term scope for continued higher to lateral ranging. Yokohama Rubber, Bridgestone Corp and Sumitomo Rubber share a similar pattern.

South Korean listed Hankook Tire remains in a relatively consistent medium-term uptrend. It has pulled back to test the 200-day MA and appears to be in the process of finding support. A sustained move below KRW33,000 would be required to question this view.

In Europe, Semperit, Pirelli, Michelin and Continental have all fallen further and extended declines below their respective 200-day MAs. They have all lost downward momentum and appear to have found at least short-term support. The potential for a relief rally has increased. The medium-term upside can probably be given the benefit of the doubt if they find support above their recent lows on the next pullback. A number of US tyre companies have somewhat weaker patterns and have so far failed to post upward dynamics.

In the rubber products sector Church & Dwight hit a new high this week. Reckitt Benckiser and Ansell remain largely rangebound and will need to sustain moves to new highs to reassert their medium-term uptrends.