Indonesia’s Tin Crown When Johan “Jim” Murod joined Indonesia’s tin rush three years ago and began his family-run smelting business, prices of the industrial metal were about to go through the roof.
From 2009 until April last year, benchmark prices for tin, mainly used in soldering for electronics, more than tripled to a record high above $33,000 a ton, which meant hefty profits for the welter of smelters on the Bangka-Belitung islands, the world’s largest tin-producing region.
Prices, however, came crashing down by mid-2011, and Murod’s six smelters now process half as much ore as a year ago.
Many other facilities in the archipelago off Sumatra have closed down, and squabbles have marred efforts to shore up prices through collective action, tarnishing the future of Indonesia’s centuries-old tin industry, and its status as the world’s top exporter of the metal.
Indonesia’s Tin Crown Is Dented
“Profits are not so good right now because prices are low,” Murod said.
“Living standards and costs in Bangka are high, so miners can only live prosperously with $23,000 per ton. A lot of miners have moved to other businesses and jobs.”
Tin on the London Metal Exchange shed about 30 percent last year, falling to its lowest level in more than a year at $17,000 a ton in late September.
Indonesia’s Tin Crown Is Dented
Indonesia and China are the world’s top tin producers, but China consumes its output, which makes the 96,000 tons of tin exported from the archipelago vital for global buyers and consumers.
In a bid to buoy his business, Murod, whose private firm produces 15,000 tons of tin ingots per year, has personally pleaded with his buyers in Singapore, Thailand, South Korea and Japan to give him higher prices.
“We had a meeting in Singapore in December, and told them that we have a problem and cannot produce,” he said. “They said it is the European economic situation and not up to them.”
“Miners now don’t mine — production has dropped 50 percent,” Murod added, when comparing the Bangka output now to a year ago. “The number of people jobless is increasing.”
About 10 years ago, the government banned the exports of tin ore from Bangka to protect the environment and boost the domestic small-scale smelting industry. Decades of unregulated operations had damaged the landscape, which in places resembles the surface of the moon.
Indonesia’s tin industry began when the Dutch East India Company started commercial mining on Bangka in the 19th century.
Today, there are 39 tin smelters approved by the Trade Ministry to export tin ingots, and competition is fierce. On-shore tin reserves are falling, capping output and pushing up production costs.
“The main challenge is getting the small-scale operations better organized,” said Peter Kettle, manager of market studies at consulting firm ITRI.
“If we see a world recession and lower prices over the next year or so, then Indonesian production will probably fall quite significantly.”
Despite the cloudy outlook, efforts to organize the industry to shore up prices have had limited success. In October, the Indonesian Tin Association, a group of 28 private and government-owned smelters and in which Murod had a leading role, joined forces to halt all tin ingot shipments.
The export ban lowered stocks held in LME warehouses and put a floor under prices, analysts said, and sent tin buyers from South Korea, Germany and Taiwan to Bangka to discuss supplies. Indonesia’s Tin Crown
Just as the moratorium seemed to be working, however, Murod quit the association, blaming state-owned Timah and the unlisted Koba Tin for breaking the ban. Infighting erupted in the association afterwards and chairman Rudy Irawan was removed from his role. Indonesia’s Tin Crown
Indonesia’s huge tin reserves of about 800,000 tons — equivalent to 10 to 15 percent of production at current rates according to US data — ensure it will remain a key player in global prices and the industry. But rising demand, coupled with the perception that Indonesian supply is unreliable after the recent export ban, could spur buyers to start looking for alternative suppliers. Indonesia’s Tin Crown
Global tin demand is expected to be 350,000 to 360,000 tons this year, down from a peak of over 370,000 tons in 2007, according to metal analysts, but Britain-based ITRI sees demand rising to around 400,000 tons by 2015.
More important, ITRI sees a significant recovery in tin prices starting in the second half of 2012, where prices are seen rising to around $25,000 a ton.
“Tin buyers must be thinking about alternative suppliers rather than risk disruptions, if Indonesia’s smelters try again to force prices higher,” said Nick Trevethan, a commodity strategist at ANZ in Singapore. Indonesia’s Tin Crown
The best-placed alternative tin suppliers are Peru, Brazil and Bolivia, where largely untapped reserves amount to hundreds of thousands of tons each, according to US Geological Survey data. Several projects are also being set up in Australia.
But most of these new mines are unlikely to deliver fresh production within four years, and many are small or low-grade projects, experts say, which means Indonesia is likely to remain the world’s dominant supplier for at least the next five years.
“In most cases, they haven’t even got to the feasibility study stage yet,” said Kettle, referring to the new projects.
In another attempt to gain control over prices, Indonesia plans to launch physical tin contracts to rival the 130-year-old LME benchmark price.
The Jakarta-based Indonesia Commodity & Derivative Exchange aims to launch its Inatin physical tin contract in February with material supplied by the likes of Timah, the world’s largest integrated tin miner. The Jakarta Futures Exchange also has plans for a tin contract this year.
Indonesia’s Tin Crown Is Dented
Metals analysts say both Indonesian contracts are unlikely to attract much investor interest. That would leave the LME’s benchmark status intact, even though many tin players complain about the London contract’s thin liquidity. The success of the new contracts hinges on garnering the support of all smelters, which looks unlikely.
While big smelters like Timah support the Inatin contract, smaller-scale private smelters in Bangka fear they are being sidelined and would prefer a Bangka-Belitung (Babel) tin market based in their archipelago.
Experts say Indonesia’s tin industrialists can only control their market, and prices, if they work together. Indonesia’s tin crown may be in place for now, but ultimately, discord may knock it off. [Reuters] Indonesia’s Tin Crown Is Dented
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