Indonesia's Export Slump Ripples Through Tin Market

tendata blogTrade Trends News

ten data blog22-02-2024

Indonesia's refined tin exports virtually evaporated in January, with the world's largest exporter sending just 400 tons of refined tin abroad, all of it in the form of solder.

It was the lowest monthly output since August 2015, when Indonesia implemented an export regime to exclude illegally mined metal. This time, the decline was also due to a change in licensing.

Tin exports are set to resume, but the uncertainty is unsettling both the paper and physical markets.

The London Metal Exchange (LME) three-month tin price is currently around $26,500 per tonne, up 5.3% from the start of the year.

Tin is the only base metal to have risen so far this year. Others on the LME are struggling in the face of weak demand and reduced manufacturing activity.

But tin supply is highly concentrated, with a sudden drop in refined metal shipments from Indonesia coinciding with the ongoing suspension of operations at Myanmar, the world's largest mine.

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Last year Indonesia's exports fell 12% to 75,000 tons, but this still equates to about a fifth of global demand.

Ironically, the change in the mining licensing process from annual to triennial was intended to cut red tape and smooth exports at the beginning of each year.

But thanks to the country's nickel boom, there are now many miners in Indonesia, and the country's Ministry of Mines is still processing hundreds of nickel mines. , open the new tab Mine Approval Request. Operators cannot export without an approved mining plan.

PT Timah (TINS.JK), Open new tab The country's largest tin producer received official approval this month, but many independent producers remain in the bureaucratic queue.

In the past, the annual export approval process has led to a drop in tin exports in January. But this year there were no ingot shipments at all last month, and it looks like it will take a while for the flow to return to normal.

Indonesia's claim to restrict refined metal exports to encourage a shift to value-added processing also poses a long-term threat to Indonesian supply.

The policy has worked well for nickel and the emerging electric vehicle battery chain, but is more difficult to replicate for tin. Around half of tin is used for soldering circuit boards, and the industry's players are geographically diverse and strong.

Nevertheless, Indonesia's ambitions to move downstream have not waned and some form of export restriction seems likely in the future.

Chinese Imports

This could be the reason for China's large purchases of Indonesian tin. It imported 3,500 tons of Indonesian tin in 2021, but is increasing its purchases to 24,000 tons by 2022. Last year's 24,475 tons helped bring China's total imports to a record high of 33,470 tons.

At 21,400 tons, net imports were the largest from overseas installations since 2012.

China's tin industry faces both the potential threat of declining exports from Indonesia and the immediate problem of reduced concentrate mining at neighboring Myanmar's Wunmao tin mine.

The mine has been suspended since early August while the country's semi-autonomous Wa state conducts an audit of reserves. There is no firm date for a restart.

Cross-border flows to supply raw materials to Chinese smelters continue, but have slowed as stocks on the ground are reduced. These stocks are now considered largely depleted, opening up new tabs according to the International Tin Association.

Given the twin threats to mining and metal supply, it is not hard to see why Chinese companies have been busy stockpiling metal just as the electronics industry is beginning to recover from the hangover following the New Crown epidemic.

Tin stocks registered on the Shanghai Futures Exchange stood at 9,033 tons, the highest level since August last year.

LME Stocks Fall

However, China's purchases have reduced the West's surplus and made the supply chain more vulnerable to disruption from Indonesia.

LME stocks have fallen 23% since the start of January to 5,945 tons, the lowest level since August. Excluding metal earmarked for physical shipment, open tonnage now stands at 5,055 tons, the lowest level since July.

Physical premiums have started to rise in Asia. Price reporter Fastmarkets has raised its assessment of Taiwan's premium to $500-700 per tonne from the LME spot price of $400-500 per tonne.

LME futures spreads remain relatively accommodative, suggesting that there is no panic yet. The latest off-balance sheet inventory report showed 1,321 tons of tin in inventory at the end of December.

However, there is a sense that supply is gradually tightening, a process that will accelerate as Indonesian exports decline.

The price reaction suggests that the double question mark hanging over global supply is beginning to worry the tin market.

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