(The opinions expressed here are those of the author, a columnist for Reuters.)
By Andy Home
LONDON, April 14 (Reuters) - Nickel's bull run over the past couple of weeks has made it the star performer among the base metals pack traded on the London Metal Exchange (LME).
Tin, arguably the metal with the most bullish supply-usage dynamics, has been pushed into second place.
The fortunes of both are inextricably linked to Indonesia's minerals export policy.
The ban on exports of nickel ore to China's vast nickel pig iron sector underlies that market's bull charge. The country's new rules on tin exports, meanwhile, have constrained shipments from what is the world's largest exporter of the soldering metal.
So far the impact on the tin price has been muted by destocking, particularly in China, but unless exports start picking up again soon, it will only be a matter of time before tensions building in the market erupt to the surface. ******************************************************* Graphic on Indonesian exports and LME stocks: link.reuters.com/mad58v Graphic on Indonesian and LME tin price: link.reuters.com/zud58v *******************************************************
Indonesian tin exports totalled 16,459 tonnes in the first quarter of this year, down 39 percent on the same period last year, figures from the country's trade ministry show.
This is a direct consequence of the export rules, which require shipments to meet minimum purity standards and be traded on the Indonesia Commodity and Derivatives Exchange (ICDX).
Cumulative exports since the new controls kicked in last September have been just over 40,000 tonnes.
That's about 20,000 tonnes off the pace of the two seven-month periods prior to September, giving some idea of what Indonesian tin policy has cost the international marketplace.
Indonesian authorities are still working to close loopholes in the export regime, particularly to stem the flow of tin solder.
Solder exports ballooned around the turn of the year in response to the tighter regulations on tin ingot exports. In February, they represented about a third of all tin shipments.
The latest figures for March, however, showed exports of solder dropping back to 432 tonnes, equivalent to just seven percent of the total 5,847 tonnes of tin shipped last month.
Solder is, in theory, exempt from the new export rules until the end of this year. However, there is growing speculation, to quote industry group ITRI, that "there will be new measures to force exporters to use ICDX before that".
Despite this game of cat and mouse with some of the local tin producers, the Indonesian authorities are likely to view the new tin export regime as a big success.
ICDX tin volumes in March were low at only 2,665 tonnes, but activity picked up strongly in the first week of April, with more than 2,000 tonnes traded.
First-quarter volumes totalled 10,540 tonnes, fairly closely aligned to the 11,500 tonnes of tin ingot exported, which suggests general compliance with a rule change that was thrown into the mix at the very last minute before the September deadline.
Equally important for both the Indonesian authorities and local producers is the effect on price.
The ICDX is operating a "suggested opening bid" system, which is a de facto floor price, even if no official will call it such.
There has been a convergence between the Indonesian and the LME tin price in favour of the former over the past couple of months.
At one stage in early January the price of Indonesian tin with a minimum lead content of 300 ppm, the most active of the ICDX contracts, was trading at a premium in excess of $1,000 a tonne to the LME contract. That premium dropped to only $230 by the end of March, with the LME price rising to close the gap.
This is all part and parcel of the clamp-down on exports as Indonesia pursues a double objective of forcing local production down a value-added route and of lifting the price to a level of sustained profitability for its producers.
It is perhaps surprising that the international price of tin on the LME hasn't reacted more to the Indonesian choke-hold on exports.
LME stocks fell by a net 105 tonnes over the first three months of the year, a marginal outcome given the 10,000 tonne drop in Indonesian shipments over the quarter.
That suggests there is still enough slack in the market to compensate for reduced Indonesian availability.
This has come from a supply-chain destocking, first and foremost in China, the world's largest producer and consumer of tin, which has been a consistent net importer in recent years.
Imports dropped sharply last year to 14,300 tonnes, less than half the 31,300 tonnes China imported in 2012.
That trend is continuing this year, with only 1,056 tonnes imported during the first two months of this year.
There is a strong possibility that China could even become a net exporter of tin for the first time since 2007 as the arbitrage makes exports increasingly profitable.
The market is evidently adjusting to the reduced flow of metal coming out of Indonesia. And it may, in the form of China, have further adjustment potential.
But you don't have to look far to see the tensions bubbling just below the surface of the tin market.
The LME forward curve remains in backwardation, the benchmark cash-to-three-months spread CMSN0-3 ending last week valued at $49 per tonne back. LME stocks may be stable but, as that spread tightness suggests, they are also historically low.
Just about every analyst agrees that the international tin market is going to record yet another year of supply shortfall in 2014, even assuming "normal" service from Indonesia.
To date, though, "normal" service is not what it used to be and unless Indonesian export flows recover to the previous level of about 8,000 tonnes a month, the market's underlying supply tensions will persist.
Chinese exports, if they come, can ease the situation, but time is on the side of Indonesia. And Indonesia wants a higher tin price. (Editing by David Goodman)