ICDX TIN 2015: Indonesia will have a greater say in price-setting with LME-style warehouse system, futures contract – Sufianto says

The nearly 25% year-on-year drop in tin prices this year has prompted Indonesian smelters and exporters to impose curbs on shipments, in a bid to limit supply and give prices a push.

The nearly 25% year-on-year drop in tin prices this year has prompted Indonesian smelters and exporters to impose curbs on shipments, in a bid to limit supply and give prices a push.

Earlier this year, the country’s largest exporter PT Timah said it would cap exports at 2,500 tonnes per month.

Meanwhile, other smelters, which are a part of the Indonesian Assn of Tin Exporters (AETI), also announced similar steps to curb shipments from the Bangka-Belitung Islands.

Besides the self-imposed cap on exports, muddled regulations also led to a decline in shipments last month.

Metal Bulletin spoke to AETI president Jabin Sufianto this week to understand why Indonesia is yet to become a price-setter for the soldering metal, and what steps it is taking to address the situation.

“It is easier to establish yourself as a price-setting country when you are the biggest consumer; as a supplier you may or you may not be able to do that,” Sufianto said.

A key reason for this, according to Sufianto, is the lack of stockpiles in Indonesia.

“We sell whatever we produce; hence we cannot control supply and demand, or prices in that sense, if we don’t have stockpiles,” he said.

The London Metal Exchange is more than a 100-year-old institution, and right now Indonesia cannot compete with it, he added.

ICDX moves forward on futures contract

The country, however, is taking steps towards addressing the situation, with one measure being the launch of a futures contract, Sufianto said.

The Indonesia Commodities and Derivatives Exchange (ICDX) reiterated its desire to launch a futures contract at its conference in Jakarta this week.

The exchange will be conducting roadshows over the next three months to educate the market on its plans for a physically settled contract, ICDX ceo Megain Widjaja told Metal Bulletin.

“For a futures contract to be accepted by buyers, the price cannot be $1,000 or $2,000 removed from the LME price,” Sufianto said.

The timing for such a contract on the ICDX is better now with prices closer to the LME level, he added.

“End users and miners will have less risk through a futures contract [on the ICDX]; thus the ICDX price will be seen as the price for trades for end users,” he said.

The other goal the country is working towards is developing bonded warehouses, or LME-style warehouse system, Sufianto said.

He believes these warehouses will bring down the cost of financing in Indonesia. These costs are presently high due to the country’s “deemed high-risk” status.

In the past few years, shipments have been stopped by different authorities, Sufianto said.

“Having bonded warehouses will mean once stock is there, no one can touch it, as it is considered overseas already,” He added.

The ICDX has been speaking with customs on the issue, and Sufianto has also been advising the relevant ministries on the matter; the bourse, the exporters’ association and the government are all working towards this, Sufianto said.

“We do not want to be a country that is always consistent in being inconsistent.”

Meanwhile, exports from some smelters have resumed after export permits were granted from the ministry of trade.

Prices for tin on the London Metal Exchange continued to trade at around $5,000 per tonne below the year-on-year level.

Deepali Sharma

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