October 30, 2008 / 1:47 PM / 11 years ago

ANALYSIS-Tin price spike shows Congo's growing origin role

By Daniel Magnowski

DAKAR, Oct 30 (Reuters) - Renewed fighting that has forced thousands to flee for their lives in Congo this week has had a disproportionately large effect on tin prices as international buyers increasing rely on the relatively small producer.

The Democratic Republic of Congo produces an estimated 4 percent of the world’s tin, making it the world’s sixth-biggest supplier, but buyers are relying more on metal from the central African country as major producer Indonesia cuts output.

Benchmark tin prices on the London Metal Exchange (LME) MSN3 closed at $15,225 per tonne on Wednesday, up 31 percent since Oct. 27, the day after heavily-armed rebel troops began marching toward major eastern city and tin trading centre Goma.

"There’s been a price spike since the start of this week," said Nicholas Garrett, mining expert at London-based advisory Resource Consulting Services, who was speaking from Rwandan capital Kigali after visiting Goma.

Troops loyal to renegade Tutsi General Laurent Nkunda declared a ceasefire on Wednesday after routing the Congolese army and reaching the gates of Goma, but several people were killed in looting overnight and a number of cassiterite traders fled across the border.

"There’s no room for thinking about business when security is the priority," said tin ore dealer John Kanyoni, who had crossed the border into Rwanda.

Kanyoni said he feared Goma’s commercial infrastructure would break down.

"How do you export when there is no administration there ... There is a risk we’ll have to stop for a while," he said.

The latest outbreak of fighting has come at a particularly sensitive time for tin prices.

"Because of production problems and quite a few operations closing in Asia, it (Congo) is gaining in importance," Garrett said.

Stocks of tin held in LME-registered warehouses are at their lowest levels since June 2004, and markets are very responsive to disruptions in supply, said Nick Moore, commodities strategist for RBS Global Banking & Markets in London.

"The unrest has played its part, along with declining inventory, in the price rise," he said. "Given the controls on output that Indonesia has put in place the market could not afford to lose the DRC output."



NO STRANGER TO TROUBLE

This week’s fighting is not the first time the eastern Congolese mining industry has been disrupted.

The government has said it wants to cut the amount of unrefined ore exported from the east in an attempt to increase exports of more expensive processed goods, and in February, the mines ministry suspended digging in the Walikale district of North Kivu as it tried to bring order to the sector.

"Current mine production there (Congo) is some 15,000 tpy (tonnes per year), about 4 percent of world production," said Peter Kettle, manager at tin consultancy ITRI.

"Supply has been difficult for a long time and before the latest outbreak of fighting we had already heard about government proposals to restrict concentrate exports from January 2009," Kettle said.

He said that even if Congolese supply was becoming more important, there is still a big gap between mine and market.

"The trouble could result in some interruption in supplies, although there are long lead times of several months before material leaving DRC is transported, smelted and refined, so this makes no immediate difference to spot availability of refined tin," Kettle said.

Resources industry watchdog Global Witness has said the Congolese army and rebels are both running tin mines to finance hostilities.

If Nkunda’s rebels were to take control of Goma and its commercial activities, it could effectively push the town’s tin merchants underground, Garrett of Resource Consulting said.

"Any traders who have dealings with the rebels directly would be in breach of U.N. sanctions," he said. "It would have quite a severe impact on legitimate traders in Goma."

Though Goma is Congo’s main tin trading point, most foreign investment in the huge central African country is concentrated on copper-rich Katanga province in the southeast, where several major mining firms have operations.

Still, far away from the gun battles and refugees, it is the decisions made by investors whose main concern is protecting their money against a global recession that are the main force in the market.

"Tin prices have been totally driven by investor buying and selling in recent days, resulting in extreme price volatility," said ITRI’s Kettle. "This swamps anything happening in the real world." (Editing by Alistair Thomson and Karen Foster)





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