Indonesian Tin Smelters Halt Output Amid Bear-Market Rout

Indonesian Tin Smelters Halt Output Amid Bear-Market Rout
A PT Timah employee works in the smelter at the company's tin plant in Pangkal Pinang, Bangka Island, Indonesia. Photographer: Dimas Ardian/Bloomberg

As many as 14 tin smelters in Indonesia halted production after prices fell into a bear market, while others scaled back operations, according to an industry group and executives in the world’s largest shipper. Tin rallied.

“Current prices cannot cover production costs anymore,” Hidayat Arsani, president of the Indonesian Tin Mining Association, said in a phone interview from Pangkal Pinang, Bangka-Belitung province today. “There are 28 smelters in Bangka and about half have stopped production.” He declined to identify the companies or specify their output.

Indonesia accounts for about 40 percent of global exports, and lower output may help to arrest the price slump. PT Timah, Indonesia’s largest producer, has curbed sales to the spot market, President Director Sukrisno said on Aug. 3. Tin tumbled 30 percent from this year’s high in February to yesterday’s close as Europe’s sovereign-debt crisis and a slowdown in China cut demand, meeting the common definition of a bear market.

“Production cuts at major producers in the country can boost prices in the short term,” Lelia Kim, a metals trader at Tong Yang Securities Inc., said by phone from Seoul. “It is unlikely to become a long-term supporting factor for prices as the market is more sensitive to macro-economic swings.”

Tin gained as much as 2.1 percent to $18,220 a metric ton on the London Metal Exchange, and traded at $18,200 at 8:01 p.m. in Singapore. The metal, used in electronics and packaging, closed at $17,345 on July 25, the lowest settlement since 2010.

Ore Supplies

The fall in prices has forced so-called traditional miners to close operations, cutting ore supplies to smelters, according to Johan Murod, commissioner at PT Tommy Utama, a Belitung-based smelter. Tommy Utama has also stopped output, he said today.

While some smelters are still operating, they have scaled back output to ease costs, Sukito Gunawan, a director at PT DS Jaya Abadi, said today. Jaya Abadi is producing at only about 60 percent of capacity, he said, declining to give a volume.

PT Koba Tin, unit of Malaysia Smelting Corp., is still operational and will meet shareholders soon to discuss market conditions, said Joni A. Rahman, a spokesman. Production may reach only 80 percent of this year’s target of 6,000 tons if prices stay low, he said in an interview.

Smelters in Indonesia jointly backed voluntary curbs on shipments in the final quarter of last year in a bid to drive the price back to $25,000. While stockpiles monitored by the LME plunged 43 percent in the three-month period, futures fell 5.7 percent. The action was officially ended on Dec. 31. The latest stoppages aren’t coordinated, according to Hidayat.

LME Stockpiles

Tin stockpiles stood at 11,705 tons, according to data from the LME today. That compares with 12,190 tons at the end of last year, and 21,350 tons on Sept. 30, before last year’s voluntary curbs began.

PT Timah has no plans to cut production and will build up stockpiles while maintaining contract sales, Sukrisno said in the Aug. 3 interview. The company’s output may climb to 45,000 tons this year from 38,000 tons in 2011, he said last month.

The global tin market faces a third deficit this year, according to a July 12 report from Barclays Plc, which projects a shortage of 7,000 tons. The price may rally toward year-end as demand improves, Barclays said.

The impact on the price will depend on the volume removed and how long production has been closed, David Lennox, a resource analyst at Fat Prophets in Sydney, said in an e-mail in response to Bloomberg questions. Neither is known, he wrote.

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