Tin prices up on Indonesian new regulation

Commodities , Metals , Tin Sep 06, 2013 No Comments

TinIndonesia, which produces more than one-third of the world’s tin, began last Friday requiring exporters to sell through local exchanges. By steering trading away from London, the center of the global tin trade for almost 140 years, Indonesia hopes to gain more control over the price of one of its most valuable commodities.

Tin rose in London, heading for the highest close in more than four months, amid concern supply will be limited as Indonesian producers restrict exports.

Tin for delivery in three months rose 1.7 percent to $22,250 a metric ton by 10:50 am Thursday on the London Metal Exchange. A close at that level would be the highest since April 11. Prices climbed above the 200-day moving average at about $22,042, an indication to analysts who study technical charts of potential further gains.

Indonesia’s efforts to control the tin trade reverberated through the market for the metal, sending prices soaring as mining companies halted shipments and some investors bet on a global supply shortfall. Today, tin rose 4% on the London Metal Exchange to $22,940 a metric ton. Prices are up nearly 9% this week

Tin for immediate delivery settled yesterday at a $125-a-ton premium to the contract for delivery in three months, the largest backwardation since Aug. 17, 2010, and a signal of limited supply. Demand will exceed production by 3,000 tons next year, a fifth straight deficit, according to BNP Paribas SA.

Indonesia‘s No. 1 tin exporter, state-backed PT Timah which accounts for about 30 percent of Indonesia’s tin exports, has halted shipments and declared force majeure, blaming new trading rules and dealing a blow to government efforts to boost the nation’s influence in commodity markets.

Other producers are also halting exports and the move by PT Timah will put pressure on lawmakers to revamp regulations forcing domestic producers to trade on a local exchange, a move aimed at allowing the world’s biggest tin exporter to establish its own benchmark pricing.

Tin producers and consumers

The expected shortfall is feeding into global prices, with cash tin on the London Metal Exchange soaring to the highest premium against the benchmark contract CMSN0-3 in 11 months on Wednesday, reflecting concern about near-term supplies.

“[The force majeure] has put the cat among the pigeons, hence why we are seeing higher prices,” said Gayle Berry, a metals analyst at Barclays. “The market is starting to realize that this could seriously tighten tin supplies. Meanwhile, there isn’t much tin on the LME and some of that may not be immediately available, it could be stuck behind a warehouse queue.”

Some industry participants, meanwhile, doubted the lasting impact of Indonesia’s new regulations.

“We’re only a few days into the new exchange,” said Charles Swindon, managing director of metals trading firm RJH Trading. “I think it’s highly likely there will be some kind of u-turn.”

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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