* Tin trade rule seen as template for palm oil, coal, gold
* Powerful Widjaja clan behind ICDX physical tin contract
* Tin laws backed by trade minister with an eye on
By Melanie Burton and Michael Taylor
PANGKALPINANG, Indonesia/SINGAPORE, Dec 30 (Reuters) -
I ndonesia's bold attempt to challenge the London Metal Exchange
(LME) for supremacy in the global tin market by imposing strict
export rules and driving up prices looks to be paying off.
Shipments from the world's biggest tin exporter slumped to
below 1,000 tonnes in September from over 6,000 tonnes after
Jakarta ruled at the end of August that all tin ingot shipments
should trade via a local platform, the Indonesia Commodity and
Derivatives Exchange (ICDX), before being exported.
By November, shipments had recovered to August levels, but
tin prices have risen more than 8 percent to $23,000 a
tonne since the end-August policy move.
"By imposing the new tin trade rules we have set a price
target at $25,000-$29,000 a tonne this year," Sutriono Edi, head
of Indonesia's Commodity Futures Trading Regulatory Agency, told
Reuters. "It's better for us to export less volume but for
higher value and better prices, than export a bigger volume but
with low value and low prices."
The stricter trading rules, and subsequent drop in exports,
spooked suppliers to some of the world's biggest electronics
companies, including Apple Inc and Samsung Electronics
. Neither company responded to emailed requests for
comment. Indonesia controls 40 percent of internationally traded
tin and, outside China, supplies up to two-thirds of Asia's
electronics industry with a material used in circuit boards that
go into smartphones and tablets.
Indonesia hopes the new rules will also deter illegal tin
mining and set a blueprint for other commodities where the
country is the world's biggest exporter, such as palm oil,
thermal coal and nickel ore, industry and government sources
said. It is also home to the mine which holds the world's
biggest gold reserves.
"We have the chance to be a price setter for tin," said
Trade Minister Gita Wirjawan, a former Goldman Sachs banker who
has presidential aspirations. "If the ICDX succeeds in keeping
prices up, we can make it the basis for other commodities."
While tin contributes less than 1 percent of Southeast
Asia's biggest economy's GDP, it is a test case for a government
keen to flex its muscles in global commodity markets.
"STRANGLE THE MARKET"
The new rule slashed trade between buyers and sellers who
cannot directly agree term deals for 2014. Traders stepped in to
fill the gap, but Indonesia's supply, now under government
control, has left some traders uneasy.
"There are a lot of customers trying other sources," said
one physical tin trader whose company has signed up to the ICDX.
"Maybe what Indonesia wants to see is they strangle the market a
bit, then LME stocks start running down and the price goes up."
Several top-tier LME members, including JPMorgan Chase
are showing interest in joining the ICDX, metals traders
said, in a sign the new contract is gaining traction and could
be a serious challenger to the LME, which owns the 136-year-old
metals contract that is the global benchmark. JPMorgan did not
respond to a request for comment.
Launched early last year, liquidity in the ICDX tin contract
had ground to a halt until a relaunch of several contracts and
the new government regulation gave it new life from August.
"The ICDX has established itself as the only credible source
of supply for Indonesia's physical market - it's quite an
achievement," said one London-based trader. "If there's no chaos
on the supply side, I should have more confidence next year that
I should get the tonnage supplied as promised."
Some people in the tin industry said there was a risk that
the LME, now owned by the Hong Kong Exchange and Clearing Ltd
, could become complacent. "The new owners ... are not
paying attention to the risks to the current contracts," said
one senior metals industry source. "If (ICDX) can get enough
physical prices based on their new reference, that could give
it an opportunity to launch a product to rival LME pricing."
A spokeswoman for the LME declined to comment.
"FAIR AND EQUAL"
Indonesian officials say the new laws should prolong the
life of the country's depleting tin reserves through sustainable
mining. Critics counter that it's more about restricting supply
to a narrow channel and raising prices to benefit vested
business interests - a charge government ministers deny.
The ICDX was founded by 11 palm oil and gold producers in
2010, and is headed by Megain Widjaja, the grandson of Eka
Tjipta Widjaja, one of Indonesia's wealthiest oligarchs.
The family's conglomerate, Sinar Mas Group, has investments
in palm oil, pulp and paper, banking, property and telecoms, and
Forbes estimates the family is worth $7 billion. The group,
which has no other tin interests, is one of six owners of the
ICDX via PT Sinarmas Futures, according to a list the exchange
provided to Reuters. The list names PT Swarna Abadi Perkasa, PT
Interlink Data Services, PT Karya Duta Perkasa, PT Inti Kencana
Mas and PT Logam Mulia Pratama as the other five shareholders.
"It's not true when critics say the regulation is only
benefitting certain business people," said Trade Minister
Wirjawan. "The regulation benefits every exporter and is fair
and equal to everybody."
Earlier this year, Indonesia set purity rules on the amount
of lead in tin and from next month will ban all unrefined metal
exports. Tin smelters that can't meet the new purity rules are
unable to export and, instead, have to feed larger smelters,
upgrade their facilities, or not survive.
The sharp drop in Indonesian exports rippled through supply
chains in the region, with smelters in Malaysia and Thailand
reliant on Indonesian tin. Global electronics giants are also
vulnerable to supply disruptions from Indonesia.
In Japan, which imports about 80 percent of its tin from
Indonesia, some trading firms have boosted inventories until
this month, but may then have to turn to LME warehouses.
Stockpiles tracked by the LME dropped to 10,005 tonnes this
week, almost a third below the levels before the new rule took
effect at the end of August.
"For somewhere like Japan or Korea, Indonesia is absolutely
critical and there's just not enough tin around from other
sources to replace it," Peter Kettle at global industry group
ITRI told Reuters in October.
Indonesia, though, has a track record of watering down, or
even reversing, populist measures, fuelling expectations that
the authorities may yet prove not quite so tough.
In July, for example, the tin purity law was softened to
allow higher lead content after an industry backlash. And
policymakers are scrambling to ease overtly nationalistic
resource rules, including a pending ban on mineral ore exports,
and a royalty hike and export tax on coal.
"What happens in the short term, and what happens after the
Indonesian election is another question," said a tin trader at a
Western bank, who is not authorised to talk to the media.
"For the short term, everyone has to play along because you
have to get the material. "But for the long term, no one knows -