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UPDATE 2-Indonesia's top tin exporter Timah halts shipments, blames state rules
September 4, 2013 / 5:37 AM / 4 years ago

UPDATE 2-Indonesia's top tin exporter Timah halts shipments, blames state rules

* PT Timah accounts for 30 percent of Indonesian exports

* PT Timah says its customers “not ready” to join new exchange

* Other Indonesian smelters also halt shipments (Adds comment, detail)

By Michael Taylor and Melanie Burton

JAKARTA/SINGAPORE Sept 4 (Reuters) - Indonesia’s No. 1 tin exporter, state-backed PT Timah, has halted shipments and declared force majeure, blaming new trading rules and dealing a blow to government efforts to boost the nation’s influence in commodity markets.

Other producers are also halting exports and the move by PT Timah will put pressure on lawmakers to revamp regulations forcing domestic producers to trade on a local exchange, a move aimed at allowing the world’s biggest tin exporter to establish its own benchmark pricing.

The expected shortfall is feeding into global prices, with cash tin on the London Metal Exchange soaring to the highest premium against the benchmark contract CMSN0-3 in 11 months on Wednesday, reflecting concern about near-term supplies.

The new rules took effect last Friday and analysts and traders said it was unclear how long the stand-off would last.

“The government are quite serious about it, but clearly something has to give. Indonesia as a country need the hard currency so there will be ultimately pressure to allow exports of tin through other channels,” said one trader at a metals merchant.

The rupiah currency has fallen to a more than four-year low on concerns over the country’s economic performance and on expectations the U.S. Federal Reserve will soon begin closing the tap on cheap money that has flowed into emerging markets.

Indonesia’s producers are already grappling with a ban on the export of tin ingots less than 99.9 percent pure that was introduced in July with the aim of boosting the value of exports.

Refined tin shipments from Indonesia fell to an 11-month low of 6,465 tonnes in July, with many small producers unable to meet the new purity levels, while Chinese buyers are turning elsewhere for supplies of preferred low-grade tin.

TRADING CHANGE

Under the new rule, Indonesia’s 47 registered tin ingot exporters must trade on a domestic exchange before shipping material.

The Indonesia Commodity and Derivatives Exchange (ICDX) launched the country’s first physical tin contract last year and Timah is one of five producers who have joined the exchange.

Timah’s corporate secretary Agung Nugroho said the company had been forced to declare force majeure because its customers had not registered with the exchange.

“We have to trade our tin in an Indonesian exchange, the ICDX, and customers can only buy our tin if they become a member first. They are not ready to be a member,” he said.

Trade ministry officials did not respond to requests for comment. The ICDX chief executive said he was unable to give an immediate comment.

Timah accounts for about 30 percent of Indonesia’s total refined tin exports, which rose almost 3 percent in 2012 to 98,817 tonnes.

Although force majeure usually only applies to acts of nature, the producer recently changed its contract terms to apply under Indonesian law. The firm included a clause that stipulated it could call force majeure if regulator changes affected their usual shipments.

Muddying the picture further, a group from Indonesia’s main tin-producing Bangka-Belitung region have refused to register with the ICDX exchange. The group of 18 smelters, who want to trade on the Jakarta Futures Exchanges (JFX), have halted exports for three months or until the government approves a rival contract.

WAIT AND SEE

Traders said problems surrounding the logistics of delivery, counterparty risk and the mechanics of the ICDX contract were behind its lack of traction with buyers.

Customers of Indonesian tin producers were taking a wait-and-see approach on the stand-off to determine how hard the Indonesian government would push on the new rules given it has rowed back on some areas in the past, they said.

“People have been sceptical in the past and the reality is that (the government) have rolled back,” said Singapore-based Barclays analyst Sijin Cheng. “There is an upside risk, but I think they are right to be sceptical.”

A prolonged dispute would hit the tin market.

“There is only one (contract) at the moment ... and that’s not working. They are fixing some of the latest issues but far less material will come out of Indonesia. And that certainly is going to have a big effect on the tin market,” said the trader.

Three month tin prices on the London Metal Exchange rose 1.6 percent on Tuesday, and were last trading down 0.34 percent at $21,500 a tonne. (Additional reporting by Yayat Supriatna in Jakarta; Editing by Richard Pullin)

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