Indonesian Bourse Starts Trading Physical Tin Contract in Challenge to LME

Feb. 2 -- An exchange in Indonesia, the world’s largest tin exporter, started trading a physical contract today to create an alternative to the benchmark on the London Metal Exchange after twice delaying the initiative.

The Indonesia Commodity & Derivatives Exchange, which offers palm oil and gold, had two lots of 5 metric tons each traded before the contract settled at $24,500 a ton. The introduction was delayed from Dec. 15 and Jan. 12 to allow potential users more time to prepare.

Tin rallied 27 percent last month, the biggest gain since at least July 1989, as stockpiles fell. Indonesia represents about 40 percent of global exports, and the move to set up the new benchmark was supported by the government through the Commodity Futures Trading Regulatory Agency and PT Timah (TINS), the country’s biggest producer. At present, the LME, the world’s largest metals bourse, offers cash and futures trading in tin.

“The LME will be the main benchmark for tin for a long time; it’s a relatively big-volume market,” Peter Kettle, research manager at St. Albans, England-based ITRI Ltd., said in an e-mail. “However, there is no reason why the ICDX can’t also work, as long as there are enough buyers and sellers.”

Syahrul Sempurnajaya, the head of the Commodity Futures Trading Regulatory Agency, said in December that it was time for Southeast Asia’s largest economy “to have our own market and price.” The planned tin trading may be a “stepping stone” for other base-metal contracts, he said.

Stockpiles Slump
There are 13 companies so far including Timah, PT Refined Bangka Tin, Noble Resources International Pte. Ltd and Toyota Tsusho Corp. (8015) that have already registered as sellers and buyers for the new tin contract, according to a statement from the futures trading regulator.

Three-month tin ended at $24,345 per ton on the LME yesterday as stockpiles monitored by the exchange dropped 25 percent over the month to 9,100 tons, the lowest level since March 2009. The metal was little changed at $24,333 a ton at 6:54 p.m. in Singapore today.

Liz Milan, managing director of LME Asia, declined to comment today on the ICDX’s plan when contacted by phone. The LME, which was founded in 1877, has traded tin since its inception, according to the bourse’s website.

Tin producers in Indonesia including PT Timah agreed to a voluntary ban on spot exports from last October to December in a bid to reverse a slide in prices. Tin plunged 13 percent in August and a further 17 percent in September amid concern a global recession may curb demand.

'About Time’
"It’s about time for us as the world’s biggest tin exporter to have our own credible and reliable market,” Deputy Trade Minister Bayu Krisnamurthi said before trading began. “The path starts today to create a new reference tin price.”

The ICDX tin contract covers 5 tons of metal with purity of 99.9 percent, Chief Executive Officer Megain Widjaja said by phone today. Delivery will be from Pangkalbalam and Muntok on Bangka Island in the main tin-producing region.

The Jakarta Futures Exchange plans to offer physical and futures trading in tin this year, according to Roy Sembel, a director at the bourse that’s known as JFX. He didn’t give a specific date.