Tin prices predicted to continue rising

Global tin prices are likely to exceed the $6,000 metric ton level and remain on an uptrend in 2004 as supply struggles to cope with rapidly growing demand, a prominent Malaysian industry official was quoted by Dow Jones as saying.

Mohd Ajib Anuar, president of the Malaysian Chamber of Mines, a lobby group for the mining industry, said a shortage of tin supply and a weakening of the U.S. dollar are the main reasons for the current rally in tin prices, which isn't likely to fizzle out anytime soon.

"I foresee that prices will continue to increase, though it will not be a straight line. At some point, there will be some liquidation and profit-taking," he told Dow Jones in a recent interview.

"But overall, the trend is still upwards. It will definitely be more than $6,000 (a ton) next year."

Besides heading the Malaysian Chamber of Mines, Ajib is also group chief executive officer and executive director of Malaysia Smelting Corp. Bhd (5916.KU), as well as chairman of the Kuala Lumpur Tin Market.

Tin prices are currently around $5,800 a ton, the highest level since the mid to late-1990s.

Robust consumer demand, particularly from the electronics industry in China and Japan, is helping to fuel the surge in tin prices.

Chinese demand for tin is estimated at 20% to 22% in 2003, while Japanese consumption growth is likely to be more than 10%, Ajib said.

"On a global basis, we see close to 10% (growth) this year for demand against stagnant supply," he said.

Global consumption is estimated at 290,000 tons for 2003, resulting in a supply deficit of between 15,000 tons to 20,000 tons, Ajib said.

"We foresee a deficit of about the same level in 2004," he said.

Strong domestic demand for tin in China means the country, although one of the world's top tin producers, may soon be a net importer, Ajib said.

"They are already importing tin now. They will become quite a significant importer of tin in the coming years," he said.

Once the world's top tin producer, Malaysia is now only a minor contributor to global production, with output estimated around 4,000 tons in 2003.

The rally in tin prices has sparked worldwide interest among industry participants to re-activate old mines.

Malaysia is also likely to see increased tin mining in 2004, Ajib said.

"With the increase in tin price, there may be some old, small mines reopening. I foresee some slight increase (in production), though not very significant. Maybe another 500 tons, and I said maybe," he said.

Smelters like Ajib's Malaysia Smelting Corp., or MSC, have been plagued with excess capacity because of the limited supply of tin concentrates.

MSC, which produces more than 35,000 tons of tin a year, is operating at half of its capacity, he said.

The outlook for the supply of tin concentrates in 2004 will depend on prices.

Tin prices would need to remain high to encourage not only the reopening of old mines, but investment in exploration activities.

Prices below $6,000 may prevent expansion and exploration because it may not be profitable for miners.

"We are concerned about the sustainability of production to meet growing demand," he said.

"The price has to go up to a level where there are reasonable returns for miners to plow back the money into exploration activities," he added.

Ajib said MSC, which contributes 15% of the world's tin production, is investing heavily in exploration. He didn't provide exact figures.

Meanwhile, trading interest on the Kuala Lumpur Tin Market, or KLTM, has increased in recent months because of the surge in prices, Ajib said.

In 2002, average turnover on the KLTM was 69 tons a day.

The daily average is expected to be higher in 2003.

The KLTM added Indonesian smelters PT Koba Tin and PT Timah (TINS.JK) as members in mid-2003.

PT Timah, one of the world's largest smelters, has yet to begin trading because it has already committed to buyers most of its production for the year.

"I believe there will be some tonnages to be allocated to the physical market in 2004," Ajib said.

He said PT Timah's involvement would help boost turnover on the KLTM slightly and attract more trading firms to participate as members in 2004.

Currently, the KLTM has eight members, comprising smelters and trading houses from Malaysia, Thailand, Indonesia and Japan.

Although the volumes traded on the KLTM were small compared with global production, he said the market was widely considered by industry participants as a pricing benchmark.

He said private contracts between producers and consumers were made based on the KLTM price.

"The KLTM serves as a useful price reference for physical contracts outside the formal market. Therefore, it is significant," he said.(*)