Indonesian Tin Output May Slump, Executive Forecasts

Tin output from Indonesia, the world’s largest exporter, may drop for a second year as flooding caused by a La Nina weather event cuts the supply of ore, according to an industry executive from the top-producing region. 

Refined-tin output may total 60,000 to 70,000 metric tons this year, Johan Murod, a director at PT Bangka Belitung Timah Sejahtera, a group of eight smelters, said in an interview. That compares with a Jan. 6 government forecast for output of 90,000 tons this year and last year’s production of 78,965 tons. 

The forecast plunge in output may exacerbate a global shortfall in the metal used in packaging and as solder, further boosting prices that surged to a record earlier this week. Standard Bank Plc’s Leon Westgate said last month that tin has the biggest supply-demand imbalance of all base metals, with “significant deficits” forecast for 2011 and 2012. 

“The weather anomaly has caused heavy rains since the middle of last year and there’s no sign it will stop anytime soon,” Murod said yesterday in Pangkal Pinang, Bangka Belitung province. The rains flooded mines, with miners able to work only two or three days a week instead of the usual six, he said. “Sometimes they cannot work at all.” 

Tin was the best performer of the six main base metals on the London Metal Exchange last year, jumping 59 percent, as supplies from China, Indonesia and Africa fell. The three-month contract peaked at $32,799 a ton on Feb. 15 and was unchanged at $32,500 at 3:03 p.m. in Singapore, reversing an earlier drop. Malaysia Smelting Corp. has said the metal may jump to $40,000.

‘Quite Substantial’

An output forecast that’s 30,000 tons “lower than earlier government estimates does seem to be quite substantial,” said Xin Yi Chen, a Singapore-based analyst at Barclays Capital. “To the extent that Indonesian production does reduce by 30,000 tons from what has been forecast, it is clear that the price signal will have to rise further to ration demand.” 

Murod’s comments add to signs that the La Nina, which has also caused heavy rains in Australia, is hurting commodity output from Southeast Asia’s biggest economy. The rains have been blamed for reduced production of coal, palm oil and rubber, driving prices higher, with rubber at a record in Tokyo. 

“No one can precisely predict the weather, it’s just something that’s out of our reach,” Murod said, forecasting that prices may trade between $32,000 and $35,000 per ton this year. A new law that restricts small-scale miners to working only river banks had also reduced the supply of ore to 30 private smelters in Bangka Belitung, Murod said.

Global Deficit

There was a 14,000-ton global deficit last year, the biggest since 2004, Standard Bank’s Westgate wrote in a note last month that correctly forecast a jump in prices to more than $30,000. Output from the small producers in Indonesia has been hit by the 2009 law that requires miners to obtain permits, as well as by crackdowns on illegal output, the report said. 

Refined-tin output from Bangka Belitung Sejahtera may slump to 12,000 tons in 2011 from about 20,000 tons last year because of limited ore supply from small-scale miners, Murod said. 

Output from PT Timah, Indonesia’s largest producer, may drop for a fourth year in 2011 to between 37,000 tons and 40,000 tons as bad weather disrupts mining, Corporate Secretary Abrun Abubakar said last month. The company said on Feb. 7 it produced 40,413 tons last year from 45,086 tons in 2009. 

Output at PT Koba Tin fell to 6,900 tons last year from 7,337 tons in 2009, Wachid Usman, president director of state- owned Timah, said Feb. 7. Timah owns a 25 percent stake in Koba Tin and Malaysia Smelting holds the rest. 

Tin may rally to as much as $40,000 per ton as global supply may lag behind demand until 2013, Malaysia Smelting Group Chief Executive Officer Mohd. Ajib Anuar said last month. Demand was climbing, new mines may take longer than expected to start up and ore quality may drop, Anuar said.Source: Bloomberg