Business News Published: Friday July 5, 2013 MYT 9:10:00 AM...

Business News

Published: Friday July 5, 2013 MYT 9:10:00 AM
Updated: Friday July 5, 2013 MYT 9:18:38 AM

Indonesia's New Tin Purity Norms To Slash Exports, M'sian firm OK

JAKARTA: Indonesia's overhaul of tin trading rules that raises minimum purity levels is expected to slash shipments from the world's top refined tin exporter over the next few months, potentially pushing up prices for the metal used in electronic goods.

PT Timah and unlisted PT Koba Tin, owned by the Malaysia Smelting Corporation Bhd, already meet the new export norms, which exceed the 99.85 percent minimum purity requirement set by the benchmark London Metal Exchange tin futures contract . But the rule affects hundreds of smaller producers who need longer to refine tin to higher specifications.

The Southeast Asian nation has, starting this month, banned exports of tin ingots with purity levels less than 99.9 percent, cutting the content of lead. The aim is to boost the value of its exports, a goal the country is also pursuing with other metals such as nickel.

The ban is set to benefit big exporters such as state-owned PT Timah, Indonesia's top refined tin producer whose shares have tumbled 45 percent since mid-January after a drop in global tin prices.

PT Timah and unlisted PT Koba Tin, owned by the Malaysia Smelting Corporation Bhd, already meet the new export norms, which exceed the 99.85 percent minimum purity requirement set by the benchmark London Metal Exchange tin futures contract . But the rule affects hundreds of smaller producers who need longer to refine tin to higher specifications.

That may result in July exports dropping to 5,030 tonnes, the lowest in a month since the 2,202 tonnes shipped in November 2011, according to an average of five industry stakeholders.

August exports are also likely to be lower than the typical 9,000 tonnes in recent months, according to tin industry officials.

"You will see exports plummet in July and August, and after that I suspect there will be some leakage and ways will be found around it," said analyst Stephen Briggs of BNP Paribas in London. "In the meantime it's going to make the tin market a bit jumpy."

A dip in Indonesian supply is expected to put a floor under prices and premiums paid for physical metal, said Briggs. Tin prices on the London Metal Exchange (LME) are down 21 percent since their mid-January peaks.

More than half of Indonesia's tin is shipped to Singapore, most of which is under LME branding, and then sold to consumers in Asia and Europe.

A spokesman for Timah said the company was ready for the new specifications, but forecast Indonesia's tin exports to drop by up to 29 percent this year.

"We think (2013 exports) will be 70,000 to 75,000 (tonnes) only ... unless the smelters can avoid that regulation," Timah corporate secretary Agung Nugroho told Reuters. This compares to exports of 98,817 tonnes in 2012.

ADJUSTING TO NEW REALITY

Tin smelters were ready for the rule change, said Hidayat Arsani, president of the Indonesian Tin Mining Association. "It's just the (export) volumes will not be as high as before ... The government has opened a window for illegal trading."

The Indonesian government reiterated its priority was to "move up the value chain". Trade Minister Gita Wirjawan said he was not concerned about a temporary decline in shipments.

The expectation is that exports should recover soon enough as local smelters adjust to the new rules.

"In the short-term, exports will drop, but by next year people will have started to look for ways to comply," said Sukito Gunawan, director at smelting company DS Djaya Abadi.

Besides big smelters, a beneficiary of the new purity norms could be the Indonesia Commodity & Derivatives Exchange (ICDX), which launched a physical tin contract in 2012 that only trades tin ingots meeting the 99.9 percent purity specification.

Poor liquidity now dogs the contract but the government is considering making it compulsory for all tin trading in Indonesia to be done on the ICDX. Trade ministry officials said the regulation was still under review. - Reuters