Indonesia is seeking higher tin prices as the largest exporter presses on with a policy that metal be traded on a local exchange before shipment, affirming a shift that roiled the market when it began three months ago.
The policy, which started on Aug. 30, is on the right track, according to Sutriono Edi, head of the Commodity Futures Trading Regulatory Agency. The government doesn’t envisage changing the rule as volumes on the Indonesian Commodity and Derivatives Exchange, or ICDX, are increasing, said Trade Minister Gita Wirjawan, who’s targeting higher prices.
Southeast Asia’s largest economy wants to challenge the London Metal Exchange as the site for setting the benchmark rate for the metal used in smartphones and packaging, as well as boost prices. The curb reduced supplies to the global market, exacerbating a deficit, and pushed futures to a six-month high. This year’s best performing base metal was listed by Morgan Stanley’s Peter Richardson this month as a top pick for 2014.
“I’m pleased but not fully satisfied yet, if possible the price should increase further,” Wirjawan said on Nov. 25 in Jakarta, without giving a specific target. “That’s the value crystallization that we want,” he said.
Tin rose on the LME in July and August, before the rule took effect, and then jumped 9.8 percent in October, the biggest monthly advance since September 2012. The price reached $24,000 a metric ton on Oct. 4 and increased 4.6 percent in the past year to $22,400. Stockpiles tracked by the LME fell to 10,795 tons yesterday, the smallest since March 2012 and 30 percent below the level on Aug. 30.
Indonesia’s government is seeking to increase the value of commodity shipments, and Wirjawan said in an interview in September that if the tin policy succeeded, it could be a model applied to other products. The country, the largest mined nickel producer, also plans to ban raw metal ore exports from next year as it implements the provisions from the 2009 mining law.
The ICDX will remain as the only bourse that’s allowed to trade tin ingots before shipment, said Edi at the regulator known as Coftra. The government’s targets are to increase prices and create a reference, he said, adding trade has been good.
“I see LME and ICDX complementing each other and working in parallel for the foreseeable future,” Peter Kettle, research manager at St. Albans, England-based ITRI Ltd., said by e-mail on Nov. 26, expressing a personal view. ITRI studies the global tin market and is mostly funded by producers and smelters.
Trading on the ICDX rose to 5,594 tons this month through Nov. 26, from 3,020 tons in October, exchange data show. The ICDX stopped publishing daily volume earlier this month. Members that can trade the metal rose to 31 from 12 on Aug. 30, and Coftra is processing applications from sixteen more companies, comprising eight sellers and eight buyers, Edi said Nov. 26.
Shipments of ingots and other tin products from Indonesia rebounded to 4,070 tons in October, after plunging 88 percent to 786 tons in September from August, Trade Ministry data compiled by Bloomberg show. The total for October 2012 was 11,048 tons. Exports in November will rise to about 6,500 tons, said Edi.
The ICDX will ensure that cargoes from its members meet the quality standards set by the government, according to Chief Executive Officer Megain Widjaja. Indonesia set the minimum tin purity for exports at 99.9 percent and maximum lead content of 300 parts per million.
Tin is the top base metal pick for 2014 as demand rises, reserves decline and mines age, according to Richardson, the Melbourne-based chief metals economist at Morgan Stanley. Global demand will exceed supply through 2016, the bank says.
The local trade rule in Indonesia may help prices to average $25,000 a ton in 2014, according to Stephen Briggs, an analyst at BNP Paribas SA in London who’s ranked by Bloomberg as the top forecaster over the past eight quarters.
While the policy has been successful in boosting prices and controlling shipments, some smelters in Bangka Belitung that have yet to join the ICDX have been forced to stop operations, said Hendra Apolo, secretary of the Indonesian Tin Mining Association. Bangka Belitung is the main producing region.