Metal Price Game Changers – Indonesian Tin Price Exchange

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For those who attended our recent Commodity/PROcurement EDGE conference, Stuart and I discussed 10 events that could shake up metals markets in 2014. Our colleague Taras previously revealed three of these events on this site. The three he mentioned – an iron ore price dip; continued downward price movement of the MW aluminum premium; and a falling GOES price – all remain on our radar. But one of these ten warrants a more watchful eye. It involves a recent development impacting tin prices.

Earlier this year, the Indonesian authorities mandated that all tin in Indonesia must first come to market (and be sold) on a local exchange before it can leave the country for export.

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We discussed at the conference that the tin producers have struggled to sell tin on to the exchange, creating a rising tin price within the Indonesian market. The data appears to bear this out if one examines the tin auction price from the ICDX (Indonesian Commodity and Derivatives Exchange) for this past month:

Indonesian Tin Prices 2013

Source: ICDX

[Editor’s Note: Indonesian exchange contracts consist of five-ton lots, so multiply the above volumes by five.]

1 Month Tin Prices - Tin Price Chart

So what to make of this short-term price anomaly?

Now we come to the tin price on the LME (see above). We see the LME price has dipped below the ICDX price. This may appear as a short-term blip because the Indonesian export rules went into effect on August 30. Not surprisingly, exports dropped considerably for the month of September to 786 metric tons, down from August’s export level of 6525 tons. But ITRI reports that  October’s export volume so far has climbed to 1,130 metric tons.

Moreover, ITRI says that now seven private Indonesian tin smelters have joined the ICDX exchange, and together they contribute to approximately half of all Indonesian tin production. ITRI goes on to opine that Indonesia would need to export about 300-400 metric tons per day to alleviate global tin supply shortfalls.

This past week has shown volumes achieving those levels on three out of five days. Therefore, we suspect that with any one single new private producer or just a slight increase of traded volume, the exchange will hit minimum liquidity volume to meet global demand.

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Should tin buyers be concerned?

Why the export policy change in the first place? Like other countries actively engaged in controlling natural resources and mining sectors more closely, Indonesia seeks to displace the London Metal Exchange as the primary tin price-setting vehicle.

From a supply market perspective, we suspect volumes will continue to ramp up in the coming weeks alleviating global supply concerns. However, what will remain of interest to tin buyers throughout the world involves the Indonesian tin price and its relationship to the LME.

MetalMiner and MetalMiner IndX(SM) will continue to keep a close eye on these developments.

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