Indonesia’s drive to displace the London Metal Exchange as the global benchmark for tin trading is whipsawing futures and leaving the most-accurate forecasters divided on the outlook for prices.
Tin will average $25,000 a metric ton next year, 7.9 percent more than now, says Stephen Briggs, an analyst at BNP Paribas SA in London ranked by Bloomberg as the top forecaster over the past eight quarters. Credit Suisse Group AG’s Andrew Shaw and Citigroup Inc.’s David Wilson, the next most accurate, predict averages of $21,750 and $22,375. Tin for immediate delivery settled today at $23,175 on the LME.
Indonesia, the biggest supplier of the metal feeding the $1.11 trillion consumer-electronics market, limited exports to tin handled through local exchanges on Aug. 30, exacerbating shortages that occurred in four of the past five years and reduced LME-tracked stockpiles by 53 percent since January 2010. Just one bourse was authorized to trade, prompting PT Timah, the top producer, to declare force majeure, a legal clause allowing a company to miss deliveries. Futures volatility reached a six-month peak and September shipments slumped 92 percent.
“The tin market will be in deficit again this year and probably next year as well, even before this problem,” said Briggs, who’s tracked metals markets for three decades. “Ultimately, it’s impossible for local Indonesian producers to trade enough on a local exchange: they need counter parties. You can’t just sell with no buyers.”
Prices of tin have swung from $14,935.50 to $33,265 since the start of 2010 as miners failed to keep pace with demand for the solder needed to produce everything from smartphones to digital cameras. Tin is 31 times less abundant than copper in the earth’s crust, the U.S. Geological Survey estimates.
The Indonesia Commodity and Derivatives Exchange in Jakarta traded less than 100 tons on all but eight days since the ban started. That compares with the nation’s average weekly shipments of 1,900 tons in 2012, government data show. Indonesia accounts for 40 percent of world exports.
Contracts outstanding on the LME increased and trading volumes exceeded the one-year average since the curbs. While tin is the smallest of the six main metals traded on the exchange, it was the first to be offered when the bourse was created in 1877. The LME’s benchmark three-month contract reflects the time it used to take to ship tin from Malaya and copper from Chile.
Tin’s 23 percent rally into a bull market since July 5 pared this year’s decline to 1 percent. That beats the 8.7 percent retreat in the LMEX index of six industrial metals from aluminum to zinc and the 2.6 percent drop in the Standard & Poor’s GSCI gauge of 24 commodities. The MSCI All-Country World Index of equities climbed 17 percent, and the Bloomberg U.S. Treasury Bond Index lost 1.8 percent.
Tin’s 100-day volatility rose as high as 25 percent in August, the most since February. It was last at 23 percent, according to data compiled by Bloomberg that reflect the degree to which prices varied from the average over the period.
Global demand will rise 2.3 percent to 350,000 tons next year, exceeding supply by 2,000 tons after a 4,000-ton shortage in 2013, according to BNP Paribas. Unless Indonesian exports rebound there will probably be a period of “severe market tightness,” Briggs wrote in an Oct. 15 report.
Stockpiles tracked by the LME tumbled 16 percent to 12,940 tons since reaching a 22-month high Aug. 30. Indonesia’s exports fell to 786 tons in September, from 9,874 tons a year earlier, government data show.
There are competing producers and Indonesia alone can’t keep prices higher, said Shaw, the head of industrial-metals research at Credit Suisse in Singapore. China, the largest user, also mines about 40 percent of world output, while Peru and Bolivia represent 16 percent of supply.
As more companies become members of the Indonesia Commodity and Derivatives Exchange, trading should accelerate and exports increase, said Wilson, the director of metals research and strategy at Citigroup in London. That should take “some of the heat out of tin prices in the short term at least,” he said.
Volumes on the ICDX, used by Pangkalpinang-based Timah for its sales, are gaining traction. Trading increased to 2,435 tons this month through Oct. 25 from 795 tons in September, bourse data show. The number of members who can transact tin rose to 22 from 12 on Aug. 30, and applications from six more smelters are being processed. The membership includes 12 buyers.
Sales on the Indonesian exchange reached 355 tons on Oct. 22, 440 tons the following day and 380 tons on Oct. 25. Supply would be adequate for the global market at 300 tons to 400 tons daily, according to ITRI Ltd., a research company based in St. Albans, England that is mostly funded by producers and smelters.
The Jakarta Futures Exchange, favored by smaller smelters, is reapplying for authorization to trade tin before export after an initial bid was rejected, M. Bihar Sakti Wibowo, a director at the exchange, said Oct. 9.
The new policies may be reversed or diluted, if history is any guide. The government relaxed new tin-quality standards three days before they were scheduled to take effect on July 1.
Indonesia doesn’t plan to ease the tin trading rule, Deputy Trade Minister Bayu Krisnamurthi told reporters in Jakarta on Oct. 11. The policy is designed to increase the value extracted from the country’s natural resources and it will be maintained, Trade Minister Gita Wirjawan said last month.
Quickening global growth may boost demand for consumer electronics just as tin supply falters. The world economy will expand 3.6 percent in 2014, compared with 2.9 percent this year, the International Monetary Fund said Oct. 8.
Global spending on consumer electronics will rise about 9 percent to $1.11 trillion this year, according to GfK Digital World and the Arlington, Virginia-based Consumer Electronics Association. Solder accounts for about 50 percent of tin demand. A mobile phone contains about 0.7 gram of tin and a tablet computer as much as 3 grams.
Timah President Director Sukrisno said Oct. 7 that the new rule was designed to create a “reasonable price,” and the company dropped term contracts in favor of sales through the ICDX. Shares of Timah jumped 25 percent in September, the biggest monthly advance in three years. The stock climbed as much as 1.3 percent to 1,600 rupiah today.
While the averages predicted by Wilson and Shaw for next year are below prices now, they expect gains in subsequent years. Wilson estimated last month that futures will average $24,000 in 2015, and Shaw expects $25,000 the following year as demand for electronic gadgets keeps expanding.
“The world economy looks like it’s getting better and global demand for consumer electronics should improve,” said Shaw. “This is a booming industry and tin has benefited.”