Tin Shortage Worsens as Indonesia Rules Curb Supply: Commodities

Photographer: Dimas Ardian/Bloomberg

A woman pans for tin ore on the beach as the sun rises in Batu Belubang, Bangka Island, Indonesia. Close

A woman pans for tin ore on the beach as the sun rises in Batu Belubang, Bangka Island, Indonesia.

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Photographer: Dimas Ardian/Bloomberg

A woman pans for tin ore on the beach as the sun rises in Batu Belubang, Bangka Island, Indonesia.

The tin market is poised for a fifth year of shortages as new rules in Indonesia curb exports, driving up costs for manufacturers of everything from tablet computers to televisions to telephones.

Indonesia, accounting for 40 percent of global supply, introduced a rule Aug. 30 that refined tin must be traded on a local exchange before it can be shipped. A lack of buyers on domestic bourses and a delay in trading permits spurred PT Timah (TINS), the largest producer, and smaller smelters to halt most sales. Exports may drop 19 percent this year, Timah’s Corporate Secretary Agung Nugrohosaid.

Tin prices more than tripled since 2005 as producers failed to keep pace with demand. Shortages started in 2010 and will continue into 2014, Barclays Plc says. Futures that climbed 8 percent last week will rise another 6 percent to $24,275 a metric ton on the London Metal Exchange by the end of the year, the median of six analyst estimates compiled by Bloomberg shows.

“It’s just confusion,” said Peter Kettle, the research manager at St. Albans, England-based ITRI Ltd., which is mostly funded by producers and smelters. “We expect to see significant disruptions in exports for August and September. Then we may see gradual stabilization.”

The metal rose as much as 23 percent in the past two months on the LME, leaving it 2.4 percent lower for the year at $22,828. The Standard & Poor’s GSCI gauge of 24 commodities, which doesn’t include tin, gained 0.3 percent and the MSCI All-Country World Index of equities climbed 12 percent. The Bloomberg U.S. Treasury Bond Index lost 4.1 percent.

Bank Anticipates

Consumption will expand 1.8 percent to 344,000 tons this year, exceeding the 1.7 percent increase in production to 341,000 tons, according to Barclays. The bank anticipates a shortfall of 2,000 tons in 2014. Output this year will be about 1,000 tons, or 0.3 percent, higher than in 2009.

That contrasts with a 32 percent jump in global sales of consumer electronics over the same period. Purchases will rise another 4 percent to $1.155 trillion next year, according to GfK Digital World and the Arlington, Virginia-based Consumer Electronics Association. Solder accounts for about 50 percent of tin consumption.

Indonesia introduced the new regulation as part of efforts to increase the value of commodity exports and strengthen control over supply. The country toughened rules for the purity of its tin exports in July and imposed a 20 percent export tax on shipments of mineral ores before a complete ban is scheduled to start in 2014. The government also imposed duties on palm oil and cocoa to encourage domestic processing.

Lacking Clarity

“They’ve been trying in the past two to three years to export value-added commodities,” said Wellian Wiranto, an investment strategist at the wealth-management arm of Barclays in Singapore. “In spirit that’s a good thing to do, but in terms of implementation and clarity it’s lacking.”

Timah wants to sell its tin to foreign buyers through the Indonesia Commodity and Derivatives Exchange, while the smaller smelters say they want to use the Jakarta Futures Exchange. Many of Timah’s buyers have yet to join the ICDX and trading hasn’t started on the JFX. Buyers and sellers are still registering and the rule’s target is to boost export value, said Bachrul Chairi, director general of foreign trade at the Trade Ministry.

The new policies may be reversed or postponed, if history is any guide. The government relaxed tin-quality standards three days before they took effect on July 1. While the purity rule was kept at 99.9 percent, the permitted level for lead was tripled and limits were scrapped for other metals. The country dropped export quotas on mineral ores last month.

Policy Changes

“The biggest issue for Indonesia is that their policy keeps changing,” said Pinaki Rath, managing director of Gold Matrix Resources Pte, a founding member of ICDX in Jakarta. “We don’t know what’s going to happen.”

Expanding stockpiles in warehouses monitored by the LME may curb gains in prices, which reached a record $33,600 in 2011. Inventories tracked by the LME jumped 22 percent in the past year to 14,270 tons. Almost 99 percent of the metal is stored in Malaysia and Singapore, about 400 miles (640 kilometers) from Indonesia’s producing islands of Bangka and Belitung, where miners use rafts to dredge for ore.

While waiting times to access inventory at some depots have lengthened, the bourse introduced rules this year that oblige warehouse operators to deliver a minimum amount of tin and nickel every day regardless of lines for other metals.

Biggest Consumer

China, the biggest consumer, is reducing imports. Purchases fell 43 percent to 9,562 tons in the first seven months from 16,707 tons a year earlier, according to customs data. The world’s second-biggest economy may grow 7.5 percent this year, the weakest pace in a generation, as the government curbs credit growth, property development and a glut of industrial capacity.

A mobile phone contains about 0.7 gram of tin and a tablet computer as much as 3 grams, according to data from ITRI and Henkel AG, a Dusseldorf-based solder maker.

The global tin market was valued at $7.1 billion last year, compared with $96 billion for aluminum and $160 billion for copper, based on consumption and average LME prices.

Shares of Pangkalpinang-based Timah jumped 11 percent this month to 1,430 rupiah (13 cents) after yesterday climbing to the highest since February. The company will report an 18 percent gain in profit to 510.3 billion rupiah this year, according to the mean of eight analyst estimates compiled by Bloomberg.

Shipments from Indonesia may drop to 80,000 tons this year as the new rule takes effect, Timah’s Nugroho said by phone yesterday. Exports were 68,000 tons in the first eight months, 11 percent more than a year earlier, government data show.

“The question is how long this goes on in Indonesia,” said David Wilson, an analyst at Citigroup Inc. in London. “I imagine there’s an incentive to get everybody signed up as soon as possible. Otherwise, if this lasts a month or more, there could be major consequences.”

To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net

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