Tin Contract in Largest Shipper Aims to Create Benchmark in LME Challenge

Dec. 12 -- Tin producers from Indonesia, the world’s largest exporter, are backing the start of a physical contract in the country to try to establish an alternative to the benchmark on the London Metal Exchange.

The Indonesia Commodity & Derivatives Exchange, which trades palm oil and gold, plans to introduce the new contract next week, offered in lots of 5 metric tons and priced in dollars, according to a statement today. Trade will start Dec. 15, according to Megain Widjaja, exchange chief executive.

Tin has declined 25 percent this year in London on concern that the European debt crisis may hurt demand. Almost 30 producers in Indonesia, which accounts for about 40 percent of global shipments, started a voluntary ban on spot exports from Oct. 1 to try to reverse the slump in prices.

"Indonesia is rich in minerals like tin, copper and nickel, so it’s time for us to have our own market and price,” Syahrul Sampurnajaya, head of Commodity Futures Trading Regulatory Agency, said at a briefing. The aim is “to create a reference price for Indonesian tin and for the global tin market.”

Three-month tin traded at $20,100 per ton on the LME at 5:47 p.m. in Singapore. The metal, which is used to make solder for electronics as well as packaging, is the second-worst base- metal performer on the LME this year after nickel.

Timah’s Support
Buyers are ready to purchase metal from the new market, Wachid Usman, president director of PT Timah (TINS), said at the exchange briefing. Timah, the world’s largest tin-exporting company, has supported the ban on spot sales.

Timah, PT Koba Tin and PT Refined Bangka Tin are among producers that may join the market, while there are eight potential buyers, including users from Japan, said Rudy Irawan, executive chairman of the Indonesia Tin Association.

The new contract, which covers metal of purity of 99.85 percent, will trade for 15 minutes daily from 2:30 p.m., the statement said. Delivery will be into Pangkalbalam and Muntok on Bangka Island in the main producing region, the statement said.

"The tin contract will be a stepping stone and benchmark for other metals like copper and nickel,” said Syahrul.

The Indonesia Commodity & Derivatives Exchange, or ICDX, was established in 2009, and offers gold contracts in rupiah and dollars and a palm oil contract in rupiah. Indonesia is also the world’s largest palm oil producer, ahead of Malaysia.

Liz Milan, managing director of LME Asia, declined to comment on the plan.

'Last Resort’
"It’s evident that during the tin-export ban by Indonesian producers, people are able to take delivery of the metal from LME warehouses in Singapore and Malaysia,” Milan said. “That affirmed the LME role as a market of last resort.”

Indonesia’s tin exports plunged 60 percent to 2,202 tons in November from a month earlier as the trade ban took effect, the trade ministry said yesterday.

Tin stockpiles monitored by the LME slumped 24 percent last month and 23 percent in October, according to bourse data. Total reserves stood at 11,905 tons as of Dec. 8, the lowest level since April 2009, and were 12,165 tons today.

Holdings in warehouses in Singapore have fallen to 370 tons from 3,385 tons on Sept. 30, while reserves in Malaysia have dropped to 11,115 tons from 17,380 tons in the same period, according to bourse data compiled by Bloomberg.