China's Hainan buys 208,000 tonnes of rubber from Thai stockpiles

China's Hainan Rubber Industry Group said it had signed an agreement to buy 208,000 tonnes of rubber fromThailand, allowing the world's top exporter of the commodity to unload stockpiles that have weighed on prices.

The stocks of rubber were bought by the government of Prime Minister Yingluck Shinawatra, who was ousted in May, in a bid to support domestic prices and bolster farmers' incomes.

"The deal gets rid of the old stockpiles built up under Yingluck's government. Our new policy is we will only buy rubber if we already have orders to sell," a source from the Thai Ministry of Agriculture told Reuters, declining to be named because he was not authorised to speak to the press.

Thailand's state-run Rubber Estate Organisation (REO), which oversees the stockpiles, sold the rubber, including some top-grade 100 percent rubber priced at around $1,900 per tonne, the source said, adding that lower-quality grades were sold for less.

The top-grade price is equivalent to $1.90 per kg. Benchmark Japanese futures, based on Thailand's RSS3 grade, traded at around 200 yen ($1.69) per kg on Friday.

Hainan said the purchases would be made at a "fair market price" but gave no further details in a filing to the Shanghai Stock Exchange dated Nov. 25. 

The Thai government offered 200,000 tonnes of rubber to Chinese companies earlier this month.

Thailand, also the world's biggest rubber producer, has been trying to reduce its stockpiles, which have been hanging over the market at a time when global prices are already depressed because of weak demand.

Traders said the price at which Hainan had agreed to purchase the cargoes could affect spot and futures prices, especially if it was confirmed it had won huge discounts.

"Given the age of the stock and the reported warehouse conditions, Hainan has probably negotiated some quality discounts," said a trader in Singapore.

A Tokyo-based trader said the Thai stockpiles could start rising again.

"As those inventories in Thailand move to China, Thailand may start building up new inventories again as there is no sign of a production cut. Therefore oversupply concerns among investors will likely stay," he said.

Japanese rubber futures have fallen nearly 27 percent this year and are trading not far above five-year lows hit last month amid a supply glut deepened by a slowing economy in top consumer China.

Thailand's cabinet passed a 58 billion baht ($1.8 billion) subsidy plan last month to support rubber farmers who, reeling from the slump in prices, have threatened protests against the government. ($1 = 118.1800 yen) ($1 = 32.7900 baht)