Tin sinks as Indonesia fails to restrict supply

What's Down: Tin prices have dropped by 11 per cent in less than a month on weak demand combined with the failure of export restrictions imposed by Indonesia, the world's biggest producer.

Tin prices have dropped by 11 per cent in less than a month on weak demand combined with the failure of export restrictions imposed by Indonesia, the world's biggest producer.

Tin prices fell from a six-month high early last month as tin stock levels increased on the London Metals Exchange.

"You've got increasing stock levels, with the global balance of demand weak due to a slowdown in China, but also weak demand in Europe and Japan," said Ross Strachan, a commodities analyst at Capital Economics in London.

While metals such as aluminium were boosted throughout February by optimism on manufacturing data out of China, this bump did not materialise for tin after the effort by Indonesia to restrict supply failed.

Concerned about falling prices of industrial metals, the government had sought to limit the amount of tin leaving the country, as higher-cost manufacturers had become unprofitable.

At the same time, Indonesia wanted to encourage the domestic downstream industry by keeping more product in the country. These efforts broke down as the bigger, more cost-efficient producers continued to honour their export contracts. Without these supporting measures, tin prices headed south.

"To some extent, what we are seeing in the last two to three months is tin catching up with the relatively weak performance [of metals] that had been occurring," said Mr Strachan.

With Europe and Japan heading into recession, tin and other industrial metals are likely to suffer from reduced demand for the time being. In the longer term, tin could recover from its slump, as supply fundamentals would support higher prices if the global economy recovers.

"At various points over the last couple of years, there were quite big concerns whether there is enough supply to meet demand, because of limited amount of additional potential supply," said Mr Strachan.

Indonesia's push to develop its downstream industry could help intensify a future supply impasse.

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