(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, April 14 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
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:
Graphic on Indonesian and LME tin price:
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 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
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
There has been a convergence between the Indonesian and the
LME tin price in favour of the former over the past couple of
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
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
(Editing by David Goodman)