Indonesian Meddling Creates Interest in Tin

By Katherine Young April 20, 2007

While metals like copper, gold, nickel and uranium have been center-stage in the recent surge of commodities exploration and investment excitement, tin, the duller cousin, has largely been considered unworthy of notice. In the last six months, however, tin prices have risen by 40%.

Platts Metals Week average composite price for tin was $7.13 per pound in January 2007 and crept up to $8.47 by February 23 this year. The per tonne price hit US $14,000 in February, up from $12,000, and many are predicting $15,000 later this year.

Disruptions in tin supply coming out of Indonesia have had a pronounced effect on world tin supply. Indonesia is one of the world’s largest producers of tin, responsible for 85,000 tonnes (t) in 2006, surpassed only by China who produced 100,000 t in the same year. A 30% reduction in Indonesian tin exports has caused the world demand forecast to outweigh predictions for supply by 30,000 t. According to the World Bureau of Metal Statistics, tin production fell by 7,000 t between January and February 2007 year on year, due to Indonesian supply shortages. The world tin deficit for this period totaled 8,000 t even as world demand fell by 3,000 t.

Earlier this year the Indonesian government cracked down on illegal tin miners and smelters and instituted more stringent export regulations. The government has named environmental damage and abysmal health and safety standards as the reason.

On the surface, this explanation seems adequate. A reporter for Reuters, Lewa Pardomuan, described the scene on one Indonesian island: “Deep craters as big as football fields pockmark the land. Smaller craters filled with turquoise water glitter deceptively in the tropical sun. The water is highly acidic… dozens of miners have set up camps in Sunghin village in the jungles of Indonesia as they forage for tin deposits in disused mines.”

A recent story published by Bloomberg, however, suggested that the Indonesian government’s motives for slowing tin mining are strategic rather than environmental. “The changes to the management of Indonesia's tin industry come as the government has been weighing a host of additional measures to try and boost the value of the nation's commodity exports.” Considering the recent 40% jump in tin prices, any efforts at “boosting” appear to be paying off.

A USGS tin analyst who spoke to Resourcex on condition of anonymity commented: “The history of the tin markets over the last 70 or 80 years is pockmarked with a lot of speculative activity, illegal activity, rigging of the market because it is a somewhat smaller market than that of other base metals like aluminum, copper, lead and zinc.”

The spokesperson said he expects Indonesia to come back into the market this year. “They’re a poor country. They need the money badly. They won’t want to cut off their nose to spite themselves.”

USGS reports in their 2006 Mineral Commodity Summary for tin that, “Tin producers responded to the higher tin prices and stronger demand of the last several years with tin mine and tin smelter openings and expansions.”

The spokesperson from USGS tempered these predictions, adding, “I have seen some evidence of [increased tin exploration]… But you’ve got to remember, the executives at these mining companies have been around a while and they lived through long periods of low metal prices from about 1980 to 2002 in which they were losing money, so they’re only going to go back into it very gingerly.”

Further diminishing western exploration companies’ desire to re-enter the tin market could be that tin deposits seem to be most common in countries that are difficult to penetrate either politically or geographically. The USGS spokesperson said, “…there are two geological tin belts to think about. One is in South America and it runs from Bolivia over to Peru and right up into the Western Amazon area of Brazil. The bigger one though is over in Asia. It starts on the island of Tasmania off Australia and runs up through Indonesia and Malaysia, Singapore and on up through Burma and Vietnam on up to the outer reaches of China and Russia. That’s a big tin belt.”

He added that Malaysia could be an area where we see increased tin interest. “For 100 years, up until twenty years ago, Malaysia was the top dog in tin production in the world. They have been relatively inactive in tin mining. The government there, although there are a lot of people employed in the resources sector, has not been all that active in the last twenty years in recovering substantial tin reserves… And if they had the will and the need and the money they could be exploited.” USGS Mineral Commodity Summary for Tin for 2007 reports that Malaysian tin reserves are the second largest in the world, after China.

So with large tin reserves sitting in the ground dormant at least since the tin market crash of 1985, it remains to be seen what sort of exploration action will take place. Demand from China continues to be strong, and global supply, although bolstered by scrap, is nonetheless restricted, at least for the time being. The question remains: what’s next for the tin price? Resourcex asked the USGS spokesperson for his outlook: “I don’t see it going too much higher. I think the big question is China. You don’t know what’s going to happen over there. There seems to be some evidence that [Chinese economic growth] is cooling off, and will grow, but at a lesser rate.”

There are few junior resource companies trading on the TSX Venture exchange. Two we’ll be writing more about are Brett Resources (TSX.V: BBR), which has seen its share price double since February this year; and Lara Exploration (TSX.V: LRA), which recently acquired a past producing tin mine in Brazil. Read more about both at Resourcex.com

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