COLUMN-Indonesian tin cartel flexes muscles; market yawns: Andy Home

(The opinions expressed here are those of the author, a columnist for Reuters)

By Andy Home

LONDON, April 10 (Reuters) - The tin price is in trouble again.

On the London Metal Exchange (LME), tin for three-month delivery has sunk to five-year lows below $17,000-per tonne this month. The soldering and packaging metal is the worst performer among the core LME base metals so far this year having notched up a 16 percent decline.

And bang on cue along comes another collective attempt to support prices from Indonesian producers, both the country's flagship operator, PT Timah, and the cluster of independents operating from the islands of Bangka and Belitung.

This time they will collectively cap exports at 4,500 tonnes per month from April.

Since Indonesia is the world's largest exporter of tin, this should be bullish news for the tin price.

The market, though, has done no more than shrug its shoulders and yawn.

In part this reflects a profound scepticism that the latest attempt to bully up prices will be any more successful than the many previous efforts.

In part, though, it reflects Indonesia's diminishing clout on the world market. The country's producers can huff and puff as much as they like, but they are yanking a broken chain.

ALL TOGETHER NOW?

The impact of the export quota has already been somewhat undermined by what looks like a scramble to ship ahead of its implementation.

Indonesia's exports of refined tin totalled 19,700 tonnes in the first three months of this year, up almost 20 percent on the same period of 2014.

That's the thing with producer cartels. To work they require considerable collective discipline, a trait conspicuous by its absence in Indonesia's fractious tin sector.

The Indonesians have flexed their muscles several times in the past but none of the previous agreements to withhold supply have lasted very long. Some have unravelled almost immediately.

The market is betting that this time will be no different, particularly since a 4,500-tonne per month export cap will have to run many months before having the desired effect.

Since there seems to be no agreement on actually cutting production, the most likely outcome will be a build in producer stocks within Indonesia which will flood out just as soon as someone breaks cartel ranks. ****************************************************** Graphic on Indonesian tin exports: http://link.reuters.com/guh54w ******************************************************

EXPORT VOLATILITY

If that happens, it will simply extend an increasingly volatile pattern of Indonesian tin exports which itself has diminished the power of local producers to influence prices.

Previous attempts to limit exports have contributed to that increasingly unstable shipment pattern, but so too have the government's policies on tightening up export rules.

When Indonesia increased minimum purity standards and required all exports be channelled via the local Indonesia Commodity and Derivatives Exchange (ICDX) back in August 2013, exports shrank dramatically over the ensuing three months. The pent-up pressure, however, erupted in a surge in exports in December that year.

A similar pattern followed a ban on exports of non-ingot forms of tin in November last year. Overseas shipments dwindled to just 465 tonnes that month. In December, however, they mushroomed again to over 10,000 tonnes.

The market has simply learned to live with these wild fluctuations in Indonesian export flows, which is why it can take a sanguine view of what is likely to be a few months of relatively lower supply.

DIMINISHING INFLUENCE

More profoundly, though, the market can live with Indonesian supply constraints because, right now at least, there seems to be no shortage of tin around.

Industry body ITRI has just published its list of top 10 global producers in 2014 and one stand-out is the fact that eight of them lifted refined tin output last year.

The only two exceptions were Thailand's Thaisarco, which saw output drop 26 percent, and Belgium's Metallo Chimique, which reported a less dramatic 5 percent decline.

Critically, all four Chinese producers in that list increased production. Indeed, the country's and the world's top producer, Yunnan Tin, recorded the third successive year of record output at almost 76,000 tonnes.

Chinese smelters' ability to raise production despite a challenged mine supply picture is down to the emergence of Myanmar as a new source of raw material.

ITRI has estimated Myanmar shipped around 28,000 tonnes of contained metal over the border to China last year.

That would place the country around third place in the world's top 10 producers, not bad for somewhere that didn't have any meaningful tin production just a couple of years ago.

How sustainable is this level of production is a keenly-disputed topic in the tin market.

But the uncomfortable fact for tin bulls and other producers is that a market narrative centred on a lack of new tin mines is looking increasingly questionable in light of what is evidently a significant new mine supply stream.

Moreover, it may not be the only one.

Tin production in the Democratic Republic of Congo, for many years constrained by unrest and an international campaign to buy only "conflict-free" material, jumped by around 42 percent to 6,500 tonnes of contained metal last year.

NO REACTION

It's this combination of scepticism and shifting supply dynamics that explains the almost total lack of reaction to the latest Indonesian producer action.

The LME three-month price is trading around $16,550, within spitting distance of last week's five-year low of $16,389.50.

The spread structure, which should be even more sensitive to an Indonesian supply threat, remains in comfortable contango.

All of which must be perplexing for Indonesia's producers, which seem to be running one of the least effective cartels in commodity market history.

That doesn't mean the price can't recover from these levels. But if it does, it will be because producers, not least some of Indonesia's producers, simply can't operate profitably at these bombed-out levels.

Closures would constrain supply far more effectively and with much greater price impact than yet another Indonesian muscle-flexing exercise.

That's what the current tin price is saying. Indonesia's producers would do better listening to the message rather than trying to change it. (Editing by David Evans)