Timah predicts tin prices will stay at current levels

Rendi A. Witular, The Jakarta Post/Jakarta

State PT Timah, the world's largest integrated tin miner, said tin prices were unlikely to get stronger next year despite higher global demand, due to rampant illegal trade of metal.

Timah finance director Wachid Usman said tin prices were projected to stand at between US$8,000 and $9,000 per ton next year, more or less the same as this year's average, with demand expected to increase by 5 percent to 280,000 tons.

"Illegal tin mining and trading activities by local businessmen on Bangka island to traders in Singapore will flood the market with cheap illegal tin, which will eventually halt tin prices from increasing," said Wachid.

Bangka island, located off the coast of Sumatra, has the world's largest tin deposits with some 420,000 tons of proven reserves. The reserves, which are estimated to last for another 10 years, do not include those located offshore the island.

Wachid said the volume of illegal tin mining and trading was unknown. However, the Bangka-based Timah said that the activities over the past six years have caused the company to suffer a potential loss of at least Rp 500 billion (US$55.5 million).

Moreover, the lack of raw tin material due to the widespread illegal tin mining had caused Timah to lower its production output this year to about 40,000 tons from 45,906 tons last year.

All this calamity started with the implementation of the regional autonomy law, which allowed the Bangka-Belitung provincial administration to issue licenses for local companies to export tin, although the central government banned the export of raw tin. This has mushroomed illegal mining and trade activities on Bangka island.

Wachid said that the company had recently reported the problem to State Minister of State Enterprises Sugiharto, who is expected to discuss the matter with the Ministry of Home Affairs.

The Ministry of Home Affairs has the authority to scrap regulations issued by local administrations.

"We expect the new government can enforce the law and help regulate the tin mining activities on Bangka island. The flooding of illegal tin in the global market is feared to ruin the already strong tin prices," said Wachid.

Tin prices have surged 73 percent on the London Metal Exchange this year to $9,150 a ton, following a higher global demand of tin for solders to bind electronic components.

The average price of tin received by the company during the third quarter of this year was $9,178 per ton, which was 93 percent higher than the same period last year. The average price during the first nine months of this year was $8,193 per ton or 72 percent higher than the same period last year.

Wachid said the rise in tin prices were triggered by a decision from the European Union (EU) to ban the use of lead for solders starting in 2006 due to environmental concern. The United States and Japan were expected to follow the EU's decision.

"We have received an increasing request from electronic producers in Japan, South Korea and Taiwan due to the EU regulation. We will focus on that market for next year," said Wachid.

Solders are expected to account for about 60 percent of global tin demand next year, with the remaining from food-can makers.

Food-can producers are likely to avoid tin and turn to aluminum and tin-free steel for their raw materials next year due to environmental reasons.