Smelters in the main producing region of Indonesia, the world top refined tin exporter, agreed late on Monday to impose a ban on tin ingot shipments from Oct. 1 until global prices recover to above $25,000 a ton.
The news has supported London prices, which edged up on Friday and Monday as other base metals sold off in a global commodities rout.
“It’s sort of an act of desperation,” said David Thurtell, an analyst at Citigroup.
“The danger is, if it goes on for too long, you’ll get some sort of breaking in the ranks.
“It seems to have had an impact but the market will be skeptical that it will last,” he added.
“It is a long way off the record highs, but for the industry to wish that it was going back to $25,000 is like wishing the sun wouldn’t come up.”
Analysts say Indonesian tin smelters run the risk of substitution, with solder possibly being made from lead instead. There are also legal doubts about the move.
Timah, the world’s largest integrated tin miner, attended Monday’s meeting and has agreed to suspend tin ingot shipments. But market players doubt if Timah — which is looking at a threshold of $23,000-$24,000 a ton before lifting the ban — will impose the export curb.
“Such a move by Timah is very unlikely as they market their product mostly on a contract basis,” said an Indonesia-based industry expert.
“Reducing sales in the spot market is possible but not breaching sales contracts.”
Commenting on a price target for smelters, Johan Murod, general secretary of the Indonesian Tin Industry Association, said in a text message:
“We cannot export at a price of $23,000 because this price is only a break-even point for small (scale) mining. $25,000 is a rational price for tin.”
Tin, mainly used in solders for electronics, struck a record high above $33,000 a ton in April, driven by a crackdown on illegal mining, tighter export rules, falling onshore reserves and rain that had hindered production in Indonesia. But like other base metals, the price has slumped on fears of a global recession.
Tin on the London Metal Exchange jumped 5.5 percent to $21,450 by 1020 GMT, on Indonesia’s plan to ban exports and on hopes of more bailout measures for banks in Europe. The price of the metal rose 2.5 percent combined on Monday and Friday, while other base metals fell.
“If they stop shipments for a month, that will put the squeeze on prices,” said Nicholas Trevethan, a senior metals analyst at ANZ Bank in Singapore. “But I don’t know how well-disciplined this moratorium will be.
“They are still producing,” he added.
“The loss of Indonesian supply is significant for the market — but stocks at 21,000 tons would be enough to meet lost Indonesian supply for two months.”
Tin stocks in LME warehouses stand at 21,295 tons, up from 16,375 tons in early January.
Indonesia is expected to produce up to 100,000 tons of tin ore in 2011, versus around 96,000 tons last year, according to industry association ITRI.
Bangka, off Sumatra’s east coast, is the world’s top tin-producing area.
Trade ministry data showed refined tin exports at 92,487 tons for full-year 2010, compared with 99,287 tons in 2009. Indonesia exported 67,989.84 tons in the first eight months this year, the data showed.
Indonesia, the world’s second-largest producer of the metal after China, has a track record of supply issues that often impact prices.
In early August, the association said police carrying out an environmental crackdown in Bangka were hindering domestic smelters’ supplies. Indonesian trade officials said last month they were looking to revise royalty payments made on all domestic tin shipments, to close a tax loophole.
“You couldn’t get away with this kind of thing in Europe or North America,” said ANZ’s Trevethan, citing anti-trust legislation.
Analysts see the global tin market in a 15,000-20,000 tons deficit this year, with new mining projects not seen taking off until at least 2013.
“This isn’t going to create a deficit — they are still producing,” said Trevethan.
“It is going to create an interesting wobble in the market, but that supply will eventually come back to the market.”
Like many other commodities, base metal investors are largely ignoring fundamentals to focus on the slowdown in global economic growth. “It is going to be a huge support to the market from a fundamental point of view,” Judy Zhu, analyst at Standard Chartered Bank in Shanghai, said on Indonesia’s export plans. “But investors in base metals markets and other commodities are not looking at the fundamentals.
“Concern about the global economic outlook is the dominant factor for now,” she said.
