Indonesia’s Grab for Tin Roils Market; World’s Top Supplier Forcing Export Customers to Buy on Local Exchange

Updated September 5, 2013, 3:47 p.m. ET

Indonesia’s Grab for Tin Roils Market

World’s Top Supplier Forcing Export Customers to Buy on Local Exchange

BEN OTTO, ANDREAS ISMAR and TATYANA SHUMSKY

Indonesia last week began requiring tin exporters to sell through local exchanges in an effort to gain more control over the price of the valuable commodity. But many buyers haven’t signed up to trade locally, raising concerns about supply and sending prices soaring.

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. Indonesia, which produces more than one-third of the world’s tin, on Friday began 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.But the new rules are off to a rocky start. On Wednesday, Indonesia’s state-controlled PT Timah, TINS.JK +0.73%one of the world’s largest tin suppliers, said it would cancel some contracts because many of its buyers hadn’t signed up to trade on the new exchange.

That raised concerns about global supply of the metal, once an ingredient in toothpaste and now a key component in solder, the substance used to fuse together electronic wiring.

On Thursday, tin rose 0.8% on the London Metal Exchange to $22,050 a metric ton, a three-week high. Tin prices are up nearly 5% this week. The LME declined to comment on Indonesia’s new trading requirements.

Any cut in tin exports would come at a particularly sensitive time for Indonesia’s economy. The country’s most recent trade numbers showed a record monthly deficit. Foreign investors have been pulling money out of Indonesia for months, sending Jakarta’s stock market tumbling and driving the rupiah down 16% against the dollar this year.

Indonesia has introduced a series of policies aimed at boosting its resources industry, often at the expense of foreign investors and mining companies. The government has limited foreign ownership of mines and taxed exports of some unrefined minerals in an effort to drive business to local smelters. In the tin market, state-controlled PT Timah is the only major seller registered to trade the metal on an Indonesian exchange.

“The real motive [of the new tin rule] is to drive prices higher,” said Charles Swindon, managing director of London metals trading firm RJH Trading. “This is a one-man show run by the government for the government.”

Indonesia’s Trade Minister Gita Wirjawan said last week that the tin export restriction will improve price transparency, deter smuggling and prevent sellers from avoiding royalties and taxes by declaring sales prices below what they actually receive.

“We have been producers of tin for a long time but never a price maker,” said Megain Widjaja, chief executive of the Indonesia Commodity and Derivatives Exchange, where tin trades in the country. “If others can do it why can’t we?”

Analysts say Indonesia’s interference in the tin market could have an outsized impact because while the metal is important to global manufacturing, the amount traded on a daily basis is small, which makes for a volatile market. Miners produce about 300,000 metric tons of tin each year, compared with 21 million tons of copper.

Indonesia is the world’s top tin exporter, with most of its supply coming from a set of islands off the coast of Sumatra. Almost two-thirds of the world’s tin is used by China, Japan and the United States.

Inventories of tin held in warehouses registered with the LME, the world’s main spare metal supply, currently stand at 9,522 metric tons.

But some of that metal may not be immediately available if Indonesian exports drop off, analysts say.

About half of the tin available to LME customers is stored in warehouses in Johor, Malaysia. The city is one of five in the exchange’s network that are home to long delays to retrieve metal.

“The market is starting to realize that [Indonesia’s trading requirements] could seriously tighten tin supplies,” said Gayle Berry, a metals analyst at Barclays.

Sep 5, 2013

Is There About to Be a Tin Squeeze?

By Francesca Freeman

Tin prices rallied Thursday, propelled higher by concerns over tight supply from Indonesia, the world’s largest supplier of the metal.

The price of tin, which is used in everything from computer chips to batteries, rose 1.9% to $22,285 a metric ton on the London Metal Exchange Thursday, its highest price in almost a month. So far this week, tin prices have gained almost 5%.

The gains came as PT TimahTINS.JK +0.73% (TINS.JK), the world’s largest integrated tin producer, Wednesday declared force majeure, saying new Indonesian government regulations requiring all tin to be traded locally before export mean it can’t fulfill contracts to directly ship tin to buyers.

Indonesia’s Trade Minister Gita Wirjawan said last week that this move will improve price transparency, avoid smuggling and prevent sellers from declaring prices below what are actually received–which means lower state revenue from royalties and taxes, but many producers have halted shipments while they amend contracts with buyers.

“[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.”

The London Metal Exchange declined to comment on Indonesia’s new trading requirements.