UPDATE 3-Indonesia's Koba Tin smelter shut, no export curb

(Adds KLTM prices)

By Lewa Pardomuan

SINGAPORE, Jan 30 (Reuters) - Indonesia has not imposed any restrictions on exports by Koba Tin, majority-owned by Malaysia Smelting Corp Bhd (MSCB.KL), even though police have ordered the closure of its smelter, the parent company said on Wednesday.

With main producer China becoming a net importer to meet local demand, second-largest producer Indonesia is Asia's largest exporter. Indonesia is back in the spotlight after concerns over supply from the country helped ignite a price rally last year.

"We've confirmed it has been shut down. But there's no official restriction on exports at the moment," Sharifah Faridah Abdul Rasheed, Malaysia Smelting's company secretary, told Reuters.

"At the moment, PT Koba management is seeking clarification." Koba Tin aims to produce 15,000 tonnes of refined tin in 2008, accounting for about 4 percent of global output.

Police in the main producing islands of Bangka and Belitung said on Tuesday Koba Tin's smelting facilities had been closed pending an investigation into illegal mining in a forest area and five Koba Tin officials had been named as suspects.

Koba Tin, the second-largest tin miner and producer in Indonesia, is 75 percent-owned by Malaysia Smelting Corp, while state-owned PT Timah Tbk (TINS.JK) owns the rest and is the biggest tin miner in Indonesia.

Indonesia is clamping down on illegal tin mining after an increase in supply led to a sharp drop in tin prices in 2002. But a crackdown on illegal mining and smelting in late 2006 sparked supply worries, which ignited price rallies in London.

Tin for delivery in three months on the London Metal Exchange MSN3 added $50 a tonne to $16,950 a tonne on Wednesday -- not far from a contract high above $17,000 a tonne hit in mid-November. Tin price has gone up around 3 percent in 2008.

"If it is proven guilty and if it's a criminal case, there will be no mercy. If the company is proven to be stealing, we'll terminate (the contract)," said Simon Sembiring, director general of mineral and geothermal at the Energy and Mines Ministry.

"But we have to respect the law. It has not been proven guilty yet because it has to go on a trial. They should remain innocent until proven guilty."

In a statement to the Kuala Lumpur Stock Exchange on Tuesday, Malaysia Smelting said Koba Tin's internal control measures and investigation confirmed that all production from its appointed sub-contractors had been derived from mining activities within the company's contract of work and outside of the forest area.

This is the second case of alleged illegal mining involving Koba Tin after three directors, including president director Anuar Sidek, were cleared last August of charges of illegal mining on Bangka-Belitung islands.

Dealers said the tin market would keep an eye on supplies from Indonesia after China slapped a 10 percent duty on exports of primary refined tin from Jan. 1 -- a move aimed at discouraging exports and ensuring local supplies.

Tin is used in electrical solders and as a corrosion-resistant coating for other metals.

"The development in Bangka and China is supporting the price. We don't expect anything to come out of China, which means if something happens in Indonesia, it will affect prices," said a dealer in Malaysia's northern state of Penang.

"There's a chance tin will revisit the highs," he said.

Global tin production was estimated at 349,000 tonnes in 2007, according to the International Tin Research Institute, down from 355,500 tonnes in 2006. ITRI is largely funded by the major tin producers.

Koba Tin's sales of refined tin dropped more than 60 percent to around 8,000 tonnes in 2007 as exports stopped during an investigation of the alleged illegal mining. It aims to produce around 15,000 tonnes of the metal in 2008.

Tin price on the Kuala Lumpur Tin Market, Asia's only physical market, rose 1.8 percent to $16,600 a tonne on Wednesday following sharp increase in prices on the LME and overseas buying. (Additional reporting by Muklis Ali in Jakarta; Editing by Ben Tan)