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Smelters who rely on lower purity tin could be hurt by the new regulations in Indonesia requiring material to be 99.9% pure in order to be exported.
“The quality issue will affect other smelters outside of Indonesia who had previously relied on crude tin as feed, which theoretically can no longer be shipped,” a trader told Metal Bulletin.
“On the [London Metal Exchange], I would say the situation is affecting the market with tin being the only metal [in recent days] to increase in price as the others fell,” he added.
Refined tin exported from the country is now required to contain a minimum of 99.9% tin, with specific maximum impurity limits for nine other elements, including aluminium and zinc.
The regulation also requires tin producers to trade ingots in the local physical market before export, and other tin products from January 1, 2015, according to reports.
The tin market has yet to feel the full impact of new legislation in Indonesia requiring higher purity levels for exported tin, and more difficulties are expected in the coming months.
The cash to three-month spread on the London Metal Exchange moved out to a $150 backwardation on Wednesday September 4 following news of the force majeure at PT Timah, the declaration of which was directly linked to the change in legislation in Indonesia.
It narrowed to a $55 back on Thursday, while the September to October spread remained in a $60 back over fears of nearby shorts.
Furthermore, tin is the only base metal on the London Metal Exchange to show significant price rises in the wake of news of force majeure at PT Timah – the world’s second largest tin producer – suggesting consumers may be coming to the LME for material.
“[This is] centred currently on September to October date. Premiums have also increased but not by anything spectacular,” the trader said.
“Tin demand over the summer has been very low and stocks are mitigating the effects of the Indonesian situation in the very short term but if the situation is not resolved soon, I imagine premiums will increase again more significantly.”
On the other hand, Peter Kettle, manager of statistics and market studies at the International Tin Research Institute (ITRI), stated that he believes the new regulation may be the right move for Indonesia.
“I am getting the impression that the new regulation might just work, and can see volumes starting to pick up on [the Indonesian Commodities and Derivatives Exchange],” he said, in an email to Metal Bulletin.
The problem with the Indonesian legislation, Kettle said, is that it has been implemented too hastily, and has caused immediate difficulties for smelters within the country.
“The timing of implementation is much too tight – less than two months from announcement in early July – and it would make sense for the start date to be pushed back to give the industry time to adapt and avoid supply disruptions,” he said.
The most reasonable way of resolving the problems caused by the new legislation, would be to extend the time frame for the exchange trading requirement by a few months to give the market time to adjust, he said.
“It is impossible to expect the industry to adapt to this major change in just a few weeks – from early July to end-August,” Kettle said.
The market is still under the impression that things will “go back to normal” in the next couple of months, based on previous experience with legislation on tin and other metals in Indonesia, he added.
“ITRI is now expecting a 2,000-tonne deficit only in 2013, [because of] a surplus in the first half of the year, slow demand and assuming Indonesian mine production will be about 95,000 tonnes, compared with exports running at an annual rate of about 105,000 tonnes up to now,” Kettle said.
In terms of price outlook, he said, much depends on global macroeconomic factors, as well as the turmoil in Syria, and added that he is not sure whether there will be a significant rise in the near term.
Tin prices climbed to an official level of $22,295/300 per tonne on a three-month basis on Thursday – the first time the price has breached $22,000 in four weeks.
Claire Hack chack@metalbulletin.com Twitter: @clairehack_mb