From: By Mar 1st 2007 | JAKARTA
The metal reaches its highest price in decades
NOT the most glamorous of metals, tin seems to tarnish whatever it is linked with in the popular mind, whether it be tin-eared musicians, tinpot dictators or tinhorn braggarts. But the base metal is now shining on the commodities markets. On February 22nd a tonne fetched over $14,000 on the London Metal Exchange for the first time in more than 20 years.
This is partly due to demand. Tin has replaced lead, which is more toxic, in a lot of soldering. China's booming market has also turned the country into a net importer of the metal. But tin's high price owes more to the other blade of the scissors.
The world's biggest exporter of tin is Indonesia, which accounted for about a third of global production in 2006. Last year the government declared it would overhaul the industry, but few analysts took it seriously. Now they are paying the closest possible attention. On February 23rd harsh new measures came into effect, raising standards, taming wildcat miners - and strangling supply.
To export the metal, companies must now obtain a slew of permits, manage their environmental impact, pay royalties in advance and ensure that all shipments meet the London exchange's purity standard of 99.85%. Only two of the country's 39 operators, Timah and Koba Tin are expected to be able to comply. Together they account for just over half the country's output, which last year amounted to 120,000 tonnes.
Eventually, government officials say, up to a dozen other producers might be able to satisfy the new rules, but not for several months. Indonesia's production is therefore expected to fall by at least a third this year. Koba, which last year exported 25,000 tonnes, suspended exports last month after three of its senior directors were arrested for allegedly buying ore from outside the company's designated area of operations.
Indonesia's reform drive began in October with a massive crackdown on illegal smelters on the island of Bangka, where most of the industry is based. Thirty-seven smelters (all but Timah and Koba) were shut virtually overnight because they lacked proper licences and deprived the government of export royalties. The illegal exporters had been smuggling tin to neighbouring countries, where they sold it cheaply, undercutting the market by as much as $300 a tonne. The government's autumn offensive pushed prices up temporarily, but traders still doubted the administration's will to clamp down. Now they doubt only its capacity to do so. It sent a team to Bangka to help the illegal smelters clean up their act. When they realised the extent of their task, prices rose again.
The tin market took another dent from the other side of the world last month, as Bolivia decided to renationalise Empresa Metalúrgica Vinto, the world's fourth-largest smelter. That decision has yet to disrupt production and analysts are not expecting any further such shocks. But with demand now greatly exceeding supply, it would not take much to cause further jolts. Closer attention is also being paid to fresh whisperings in Jakarta's corridors of power. Which of its myriad commodities will Indonesia decide to reform next?