Tin at $24,000 Is Seen as ‘Ideal Level’ for Indonesia’s ICDX

Tin should climb to an average of $24,000 a metric ton this year to enable further investment in the industry in Indonesia, according to the only exchange in the country that’s permitted to trade refined metal before export. Shares of PT Timah surged the most in two weeks.

The so-called ideal price compares with average production costs of $21,500 for local smelters, said Indonesia Commodity and Derivatives Exchange Commissioner Fenny Widjaja. That’s 4.6 percent higher than futures in London, and 3.2 percent above the ICDX’s PB300 grade, the most-active contract on the Jakarta-based bourse, according to data compiled by Bloomberg.

The world’s largest exporter of the metal used as packaging and solder required that all refined tin be traded through the ICDX before export since August, seeking to create a benchmark price and challenge the role of the London Metal Exchange. Indonesia is a significant producer of commodities and it needs to create more reference prices, with nickel, copper and rubber as the next possible contracts, Widjaja said in an interview.

“ICDX has been quite successful so far, with the main producers like PT Timah consistently trading ingots through the exchange,” said Wilim Hadiwijaya, a Jakarta-based analyst at PT Ciptadana Sekuritas. “The current price is already favorable. If it gains further of course it will be better for companies.”

‘Ideal Level’

Tin advanced 2.7 percent on the LME this year, the best performer after nickel, on forecasts for a global deficit and prospects for reduced shipments sold through the ICDX. The metal, which traded at $22,950 a ton at 5 p.m. in Singapore, averaged $22,298 last year. Prices rose 18 percent in the third quarter after the ICDX rule change took effect.

PT Timah, Indonesia’s biggest producer, jumped 5.4 percent to 1,845 rupiah in Jakarta today, the most since March 7.

A price of “$24,000 is the ideal level for this year, that it will allow smelters to invest more in exploration, maintenance and post-mining activities,” Widjaja said on March 21. “The government will get high royalty payments that can be used for infrastructure such as ports and power plants, which will not only support the tin industry but other sectors.”

Producers such as PT Timah sell their refined metal through the ICDX, with the exchange setting a daily opening bid for the auctions, a level that’s known by sellers as the floor price. The exchange has 21 producer members, with six more smelters in the process of joining, the ICDX said March 11.

The tin price must not climb too high, too fast as that would allow China to resume exports, said Widjaja. The cost of production in the world’s biggest producer is about $27,000 a ton, he said.

Fifth Year

The global tin market will have a fifth year of deficit in 2014, Barclays Plc said in a Jan. 13 report, forecasting a shortage of 5,000 tons. Global demand was 344,000 tons in 2013, beating production of 341,000 tons, according to Barclays.

ICDX plans to start a tin futures contract in the fourth quarter, said Widjaja. The exchange will wait until September, or after a year of tin auction trading, before deciding on contracts in other commodities such as nickel and copper, with plans dependent on whether the government backs the creation of local reference prices, said Widjaja.

For a potential rubber contract, ICDX will team up with exchanges in Malaysia and Thailand to create dollar-denominated physical contracts, he said without elaborating.

(Adds Timah’s share performance in sixth paragraph.)
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