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UPDATE 1-China state reserves plan to buy up to 50,000 T rubber

Published: 07 Jan 2009 01:11:37 PST

SHANGHAI/BEIJING, Jan 5 - China's state reserves plan to purchase up to 50,000 tonnes of natural rubber, after prices of the commodity collapsed as a global economic slowdown saps demand, sources said on Monday.

Rubber has been under pressure as the global economic crisis erodes car production worldwide, with Tokyo rubber futures ending 2008 down 56 percent, their biggest annual decline ever.

China is the world's top natural rubber consumer, but more than half of the rubber is sourced overseas.

Sources said China's top two rubber producers, Hainan State Farms and Yunnan State Farms, are still in talks with the State Reserves Bureau on prices, after weeks of lengthy discussions.

The farms originally asked for 18,000 yuan ($2,636) per tonne, which was rejected by the state reserves, as it was nearly twice the market price.

"Now they are offering 12,000-13,000 yuan per tonne, which is still too low," said a senior official at one of the firms. "Talks with the State Reserves Bureau are not easy."

The state bureau is expected to launch the purchase after the Lunar New Year holiday at the end of January, the sources said.

China's rubber prices have tumbled nearly two thirds since last summer, as the global recession hit the country's tyre industry, the largest in the world.

Still, the Chinese reserve purchase plan might not solve the problem, some officials say.

"Even the purchase cannot solve the problem that rubber prices are too low now," said Fan Rende, chairman of the China Rubber Industry Association, which says it has been lobbying officials to scrap a tax on natural rubber imports to help tyremakers.

In Tokyo, key rubber futures rose by close to their daily limit on Monday, the first trading day of the year, fuelled by a surge in oil prices and firm Japanese shares.

The Tokyo Commodity Exchange rubber contract for June delivery <0#JRU:> on Monday rose to 150.0 yen per kg, a six-week high, up 13.9 yen and approaching the daily 16-yen limit. ($1=6.829 Yuan)