HONG KONG Aug 29 China will be forced to scramble for supplies of low-grade tin from Malaysia and LME warehouses after a rule change in top exporter Indonesia, which supplied material used to produce 10 percent of China's high-grade tin last year.
Reduced supply from Indonesia is likely to curb the growth of refined tin output in China, while the push to source feed elsewhere could support London Metal Exchange (LME) tin prices , which have fallen more than 7 percent this year, traders and sources at smelters said.
Indonesia, the world's top exporter of tin, banned exports of tin ingots with purity levels less than 99.9 percent from July 1. The ban is part of a government effort to boost industrial activity and export higher value processed goods rather than raw materials.
China, the world's largest producer and consumer of tin, relied on Indonesia for nearly half of its record imports of 31,334 tonnes of metal last year, using almost all as feed to produce high-grade tin for soldering and packaging.
Cui Lin, chief representative in China for global tin industry body ITRI, said Chinese output would likely fall about 6,000 tonnes a year if Indonesia strictly enforced its policy. The fall would have been more, but producers would partly offset the loss by buying elsewhere, she said.
Uncertainty still surrounds Indonesia's push to move up the value chain in commodities, with some in government pushing for a relaxation of a ban on metal ore exports to shore up the rupiah and boost the economy.
ITRI has shaved its 2013 forecast of China's refined tin production to 158,100 tonnes, down from 160,000 tonnes previously, but still up 4 percent from 152,000 tonnes in 2012.
The downgrade was mostly due to weak prices in China discouraging producers from making metal, Cui said, although ITRI expects higher prices in the second half which could prompt a step-up in output.
It had not yet included the impact of Indonesian export ban in its 2013 forecast as it was still assessing whether the ban would be fully in place in coming months, she added.
MALAYSIA, LME EYED
Refiners have already boosted imports of feed ahead of the Indonesian ban, according to official figures.
China's imports of tin ores and concentrates rose 148 percent on a year ago in the first seven months of the year to 55,343 tonnes, official data showed.
The impact of any reduced supply of refined metal due to the shortfall from Indonesia may be muted in the short-term, as China's economic slowdown has dampened demand in recent months, said the smelter sources and analysts.
Domestic spot tin prices SN-1-CCNMM stood at 143,500 yuan ($23,400) a tonne on Wednesday, the lowest since August 2012.
As demand rises, however, refined tin producers will need to find raw materials to replace the Indonesia shortfall to boost production, they said.
Chinese refiners would look to Malaysia for supply because, like Indonesia, it has a free-trade agreement with China, said a sales manager at a tin producer in Yunnan, the top tin producing province in China. That means tin imports are free of a 3 percent import tariff, he said.
Higher demand from China for LME metal and Malaysian materials could push up premiums in Asia. The firm had imported low-grade tin from Indonesia in previous years at premiums of about $250 to $300 over the cash LME prices, the manager said.
Supply from Malaysia could be limited as the nation's producers also relied on imports from Indonesia, said traders, while taking tin from LME warehouses would involve joining long queues with buyers of other metals such as aluminium and copper.
Chinese producers had tried to buy low-grade metal from LME warehouses last year but cancelled when it became clear that delivery would take a few months, a trader at an international trading house said.
"Where else can the Chinese get low-grade metal if the supply in Malaysia and the LME warehouses dry out?" the trader said.
($1 = 6.1217 Chinese yuan) (Editing by Richard Pullin and Simon Webb)