(Updates price in fifth paragraph.)
Oct. 9 (Bloomberg) -- Tin smelters in Indonesia, the largest exporter, started to furlough staff in the biggest producing region as some companies have yet to meet a new rule requiring metal be traded on a local exchange before shipment.
“It’s hard for us, some smelters have stopped operations and put workers on furlough,” said Tjahyono Mukmin, president director of Serumpun Tin, a group of 18 producers that wants to sell their output through the Jakarta Futures Exchange, or JFX. Mukmin, speaking in a telephone interview, didn’t give an estimate of the number of workers affected.
Indonesia accounts for about 40 percent of global shipments of the metal used as solder and Serumpun’s comments show the domestic consequences of the new policy, which has cut exports, pushed prices to a six-month high and drained reserves. While the Indonesia Commodity and Derivatives Exchange in Jakarta has started local tin trading before export, the JFX’s request for a license was rejected by the regulator. M. Bihar Sakti Wibowo, a director at the JFX, said today that the exchange will reapply.
“If this continues, it will definitely have a big impact,” Mukmin said, referring to Bangka Belitung, the biggest tin-producing region. “People have no income because smelters stopped operations, it could slow the economy.”
Tin for delivery in three months beat the five other main base metals including copper on the London Metal Exchange this year as the Indonesian curbs risked worsening a global deficit. The metal rallied to $24,000 a metric ton in London on Oct. 4, the highest price since March 15, and traded 0.9 percent lower at $23,381 at 1:49 p.m. in London.
Indonesia’s local-trade rule, which took effect Aug. 30, is aimed at displacing the LME as the venue for setting the global benchmark, according to the Commodity Futures Trading Regulatory Agency in Jakarta. The largest base-metals marketplace, bought for $2.2 billion last year by Hong Kong Exchanges & Clearing Ltd., has traded tin contracts for more than a century.
Indonesia’s tin shipments plunged 88 percent to 786 tons last month from August, the Trade Ministry said on Oct. 7. That’s the lowest volume since at least February 2007, when the government began monitoring sales. The policy changes and lower exports may create a bottleneck, according to Commerzbank AG.
Tin tied with lead as the favorite long trade among base- metal traders, according to a Macquarie Group Ltd. survey of more than 325 people released yesterday during LME Week in London. Long trades are bets on price gains.
PT Timah, Indonesia’s largest producer and shipper, declared force majeure on exports after the rule change took effect as some buyers have yet to become members of the ICDX, which the company uses for its overseas sales. The rule’s objective is to create “a reasonable price,” Timah President Director Sukrisno said in an interview on Oct. 7.
The commodity regulator, known as Coftra, hasn’t approved the proposal from the JFX to trade another tin contract, Deputy Trade Minister Bayu Krisnamurthi said on Oct. 7. The local-trade policy is designed to increase the value of shipments, according to Trade Minister Gita Wirjawan.
“We have sent back a reply letter to Coftra, along with the requested changes,” Wibowo, director at JFX, said in an interview. “If we ever get approval, we’ll be ready for trading within a week after finalizing everything. We already have about 20 potential buyers from Singapore, London and Taiwan.”
Tin stockpiles in warehouses tracked by the LME dropped 1.6 percent to 12,835 tons, the lowest since Jan. 16, according to bourse data today. The reserves contracted 13 percent last month, the most since January 2012, as Indonesia’s rule took effect and metal was withdrawn from sheds in Malaysia and Singapore.
--Editors: Jake Lloyd-Smith, James Poole