Indonesia's Tin Men face bleak future in a free market world
Published by MAC on 2012-01-31Source: Reuters
Indonesia is the world's leading producer and exporter of tin.
However, market prices for the metal have slumped over the past nine months, leading to a halving of the output of smelted products from the country's main tin producing centre, Bangka Island.
As reported by MAC in August 2011, the Indonesian authorities recently renewed an environmental crackdown on the region's small scale tin miners, thus restricting smelter supplies and export of tin ingots. See: Indonesia cracks down on "illegal" small-scale miners
With revenues falling, the Indonesian Tin Association (ITA - a group of 28 private and government-owned smelters) then joined forces to halt all tin ingot shipments.
But two companies, state-owned PT Timah and unlisted PT Koba Tin, allegedly broke the export ban, thus undermining this attempt to set a viable floor price on the international market.
What now is the future for Indonesia's tin industry, or the many thousands dependent on it?
According to an analysis by Reuters' Michael Taylor: "The best placed alternative tin suppliers are Peru, Brazil and Bolivia, where largely untapped reserves range from 710,000 tonnes to 400,000 tonnes, according to U.S. Geological Survey data. Several projects are also being set up in Australia."
But, says Taylor: "[M]ost of these new mines are unlikely to deliver fresh production within four years, and many are small or low-grade projects... which means Indonesia is likely to remain the world's dominant supplier for at least the next five years".
What happens beyond that point is clearly very much in doubt.
Editorial note: There's some irony in the fact that most of Indonesia's tin producers are grouped together in the Indonesian Tin Association (ITA) , but that even this hasn't held together as a united body, let alone spearheading a global producers pact.
In the absence of an international agreement to methodically adjust supply to demand, tin mineworkers in both Southeast Asia and Latin America will be forced to vie with each other, and many will be driven out of the business.
It's sobering and instructive to recall that, over forty years ago in 1956, the International Tin Council (ITC) was established to govern the world supply and demand of tin.
The ITC was an early attempt to promote a long-term balance between world production and consumption of commodities and prevent excessive fluctuation in price.
The Council set up and operated a "tin buffer stock system", involving mandatory contributions by producer and consumer countries, the fixing of floor and ceiling prices, and the regulation of exports.
Six 5-year International Tin Agreements were concluded from 1956 and the Council was finally dissolved in 1990.
Already, by late 1985, it was clear that these Agreements had dramatically failed to protect the interests of producers, particularly miners in Bolivia.
Arguably, among the reasons for this was a breaking of the trade rules by "renegade" mining companies - with Rio Tinto's newly-opened mines in Canada and the UK cited as a key factor.
Lessons from Bolivia
At their peak, Bolivia's tin mines produced over 30% of world supply and were responsible for 70% of the country's total export earnings.
The tin barons - such as Patiño, Aramayo and Hochschild - had become some of the richest men in South America.
But, after the 1952 revolution, their assets were nationalised and these mines helped sustain the country's economy for the succeeding three decades.
In October 1985, the London Metal Exchange, which set the global tin price (as it still does) halved the price almost overnight.
The 22-nation International Tin Council then announced it was bankrupt and could no longer support the price by buying-in excess stock from the market.
By May 1986, the price had nose-dived from $8,000 per tonne to $3,400, in what widely became known as "The Great Tin Crash".* The consequences for many Bolivian miners, already working in appalling conditions, were disastrous.
In just one year, the state mining company, Comibol, sacked 16,000 of its 27,000 workers, and within a decade, the workforce toppled to under 2,000 as one mine after another closed down.
This was despite a series of hunger strikes, marches and mine occupations by the highly organised and militant miners' federation.
In 1999, against fierce opposition from mineworkers, the government privatised the remaining tin mines.
Following the election of president Evo Morales in 2006, the Bolivian state once again attempted to take over the sector. In 2008, it seized the Huanuni tin mine from foreign control.
But, by then, brutal conflicts costing several lives had broken out between around 900 state miners and 3,000 "cooperativistas" who demanded the right to run and operate the mines themselves.
See: Two miners killed, many hurt in Bolivia tin clash
* John Crabtree, Gavan Duffy and Jenny Pearce, The Great Tin Crash: Bolivia and the World Tin Market (London: Latin America Bureau, May 1987)
Indonesia's tin crown dented, but still fits
By Michael Taylor
Reuters
24 January 2012
JAKARTA - When Johan "Jim" Murod joined Indonesia's tin rush some three years ago and began his family-run smelting business, prices of the industrial metal were about to go through the roof.
From 2009 until April last year, benchmark prices for tin, mainly used in soldering for electronics, more than tripled to a record high above $33,000 a tonne, which meant hefty profits for the welter of smelters on the Bangka-Belitung islands, the world's largest tin-producing region.
Prices, however, came crashing down by mid-2011, and Murod's six smelters now process half as much ore as a year ago.
Many other facilities in the archipelago off Sumatra island have closed down, and squabbles have marred efforts to shore up prices through collective action, tarnishing the future of Indonesia's centuries-old tin industry, and its status as the world's top exporter of the metal.
"Profits are not so good right now because prices are low," said Murod .
"Living standards and costs in Bangka are high, so miners can only live prosperously with $23,000 per tonne. A lot of miners have moved to other businesses and jobs."
Tin on the London Metal Exchange (LME) shed about 30 percent last year, falling to its lowest level in more than a year at $17,000 a tonne in late September.
Indonesia and China are the world's top tin producers, but China consumes its output, which makes the 96,000 or so tonnes of tin exported from the archipelago vital for global buyers and consumers.
But global economic uncertainty and the euro zone debt crisis have weighed on benchmark prices, reducing demand for electronic products and the tin that goes into them.
In a bid to buoy his business, Murod, whose private firm produces 15,000 tonnes of tin ingots per year, has personally pleaded with his buyers in Singapore, Thailand, South Korea and Japan to give him higher prices.
"We had a meeting in Singapore in December, and told them that we have a problem and cannot produce ... they said it is the European economic situation and not up to them," he said.
"Miners now don't mine -- production has dropped 50 percent," Murod added, when comparing the Bangka output now to a year ago. "The number of people jobless is increasing."
Power to the People
About ten years ago, the government banned the exports of tin ore from Bangka to protect the environment and boost the domestic small-scale smelting industry. Decades of unregulated operations had damaged the landscape, which in places resembles the surface of the moon.
Indonesia's tin industry began when the Dutch East India Company started commercial mining on Bangka in the 19th century.
Today, there are 39 tin smelters approved by the Indonesian trade ministry to export tin ingots, and competition is fierce. On-shore tin reserves are falling, capping output and pushing up production costs.
"The main challenge is getting the small-scale operations better organised," said Peter Kettle, manager of statistics and market studies at the consulting firm ITRI.
"If we see a world recession and lower prices over the next year or so, then Indonesian production will probably fall quite significantly."
Despite the cloudy outlook, efforts to organise the industry to shore up prices have had limited success.
In October, the Indonesian Tin Association, a group of 28 private and government-owned smelters and in which Murod had a leading role, joined forces to halt all tin ingot shipments.
The export ban lowered stocks held in LME warehouses and put a floor under prices, analysts said, and sent tin buyers from South Korea, Germany and Taiwan, to Bangka to discuss supplies.
Just as the moratorium seemed to be working, however, Murod quit the association, blaming state-owned PT Timah and the unlisted PT Koba Tin for breaking the ban. Infighting erupted in the association afterwards and chairman Rudy Irawan was removed from his role.
Global Tin
Indonesia's huge tin reserves of about 800,000 tonnes -- equivalent to between 10 and 15 percent of production at current rates according to U.S. data -- ensure it will remain a key player in global prices and the industry.
But rising demand, coupled with the perception that Indonesian supply is unreliable after the recent export ban, could spur buyers to start looking for alternative suppliers.
Global tin demand is seen between 350,000 and 360,000 tonnes this year, down from a peak of over 370,000 tonnes in 2007, according to metal analysts, but UK-based consultancy ITRI sees demand rising to around 400,000 tonnes by 2015.
More importantly, ITRI sees a significant recovery in tin prices starting in the second half of 2012, where prices are seen rising to around $25,000 a tonne.
"Tin buyers must be thinking about alternative suppliers rather than risk disruptions, if Indonesia's smelters try again to force prices higher," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.
The best placed alternative tin suppliers are Peru, Brazil and Bolivia, where largely untapped reserves range from 710,000 tonnes to 400,000 tonnes, according to U.S. Geological Survey data. Several projects are also being set up in Australia.
But most of these new mines are unlikely to deliver fresh production within four years, and many are small or low-grade projects, experts say, which means Indonesia is likely to remain the world's dominant supplier for at least the next five years.
"In most cases, they haven't even got to the feasibility study stage yet," said Kettle, referring to the new projects.
Price Control
In another attempt to gain control over prices, Indonesia plans to launch physical tin contracts to rival the 130-year-old LME benchmark price.
The Jakarta-based Indonesia Commodity & Derivative Exchange aims to launch its INATIN physical tin contract in February with material supplied by the likes of PT Timah, the world's largest integrated tin miner. The Jakarta Futures Exchange also has plans for a tin contract this year.
Metals analysts say both Indonesian contracts are unlikely to attract much investor interest. That would leave the LME's benchmark status intact, even though many tin players complain about the London contract's thin liquidity. The success of the new contracts hinges on garnering the support of all smelters, which looks unlikely.
While big smelters like PT Timah support the INATIN contract, smaller-scale private smelters in Bangka fear they are being sidelined and would prefer a Bangka-Belitung (Babel) tin market based in their archipelago.
"The INATIN market is too centralised... 70 percent of tin ingot production is from Bangka island," said Murod.
Experts say Indonesia's tin industrialists can only control their market, and prices, if they work together. Indonesia's tin crown may be in place for now, but ultimately, discord may topple it over. (Reporting by Michael Taylor; Editing by Miral Fahmy and Simon Webb)
Indonesia tin official quits after export ban failure
By Michael Taylor
Reuters
9 December 2011
JAKARTA, - Industry cracks are starting to show in top tin producer Indonesia, with the breach and collapse of the self-imposed export stoppage this month resulting in the surprise resignation of the secretary at the Indonesia Tin Association (ITA).
There are now concerns that Indonesian smelters will flood the global market with tin and help push prices down, as they seek to offload material held back during the export stoppage.
Smelters in Indonesia's main tin-producing region of Bangka island stopped tin ingot shipments from Oct. 1 in an effort to prop up falling global prices.
At the time, smelters targeted prices above $23,000 a tonne after benchmark London prices for the base metal slumped by almost half from records above $33,000 a tonne hit in April.
A central figure behind industry efforts to support prices was Johan Murod, a black-belt in karate and director of PT Bangka-Belitung Timah Sejahtera, which groups six private tin smelters on Bangka island.
"I have resigned as the secretary of ITA," Murod said in an email to Reuters. "The reason I resigned (was) because I am very disappointed with PT Timah and PT Koba Tin."
"The reason why the stoppage of export failed is because some of the members of ITA breached the commitment," said Murod, whose firm produces 15,000 tonnes of tin ingots per year. PT Timah could not be reached for comment on Friday.
At the height of the export stoppage, a group of 28 private and public smelters formed the ITA to create a united front for the Indonesian industry.
Support also came from the Indonesian government, with the trade ministry describing the export ban as "fine -- as long as the objective is to improve our bargaining power as the biggest tin exporter in the world".
But PT Timah, the world's top integrated tin miner and ITA member, continued to ship ingots as per contracts agreed before the ban -- sowing the seeds for failure, said industry players.
Despite a large drop in tin exports in November, Murod forecasts that December could see an additional 10,000 tonnes of tin shipped from the archipelago of 17,000 islands.
But as analysts say logistics or bottlenecks may limit shipments, the December export data will now prove crucial.
Advantage Latin America?
Sceptical analysts doubted the Indonesian smelter industry's resolve, citing previous attempts by Southeast Asia's largest economy to prop up tin prices.
The doubts proved right after government data showed a surprise rise in monthly tin exports for October.
"Some of the producers do have longer dated commitments with regards to exports... that was one of the reasons why we haven't seen some of the curbs being done by the large exporters," said Dominic Schnider, executive director for wealth management research at UBS.
"You don't want to be unreliable -- that really hurts your business in the long run," he said. "This was a little bit misplaced by those who organised or were expecting the curbs, so I wasn't really surprised."
Schnider said the average marginal production cost for global tin producers was about $9,000 a tonne, and that the Indonesian action could ultimately offer an advantage to rival tin miners in Latin America in the distant future.
He forecast that global tin production would be 354,000 tonnes this year with a deficit of 12,000 tonnes, and 366,000 tonnes in 2012 with 9,000 tonnes deficit.
Indonesia, which has a track record of supply issues that attempt to impact prices, exported 92,487 tonnes of refined tin last year and 99,287 tonnes in 2009, trade ministry data showed.
People Power Fails
In a final attempt to make the ban hold, the ITA looked to force PT Timah's hand into halting all its shipments, and hundreds of smelter workers even went as far as to block a shipment bound for Singapore from PT Koba Tin.
Unlisted PT Koba Tin is a joint venture between Malaysia Smelting Corporation and PT Timah.
Once Koba Tin's Singapore shipment of 400 tonnes finally made it through the port blockade, the flood-gates began to open in the days that followed.
Tin traded at $20,199 a tonne on the London Metal Exchange by 0901 GMT. Prices for the metal, mainly used in solders for electronics, have dipped about 1 percent since the ban was introduced.
"They belatedly realised that there are other stronger price influencers rather than supply-demand issues," said a Singapore-based metals trader on Indonesian smelters. "There are other price influencers, notably the macro-economic environment."
He added that there was little prospect of a new export stoppage as credibility was now lacking -- but refused to rule out any future supply cuts.
"That we cannot say," he said. "Things are rarely logical in Indonesia."