Industry Forecast - Tin: Sustained Lower Prices to Discourage Production

29 Sep 2011 • by Natalie Aster

BMI View: We expect Indonesia's tin production growth to remain relatively flat in 2011, as the sharp correction in global tin prices has led tin miners in the country to reduce mining efforts and adopt a wait-and-see approach towards future production plans. Weak preliminary production data from the world's largest integrated tin miner, PT Timah, have confirmed this trend.

We expect tin production to come in at 84.5kt ('000 tonnes) in 2011, 0.6% higher than 2010. A crackdown on illegal mining, restrictions on small mining operations, and heavy rains during the earlier part of the year hindered production and contributed to the tin rally from February-April, when tin prices averaged more than US$30,000/tonne. Prices have gone down significantly since, with tin trading at an average of US$24,000/tonne recently.

The Indonesian Tin Industry Association claims that tin smelters in the country are currently adopting a wait-and-see attitude towards global economic growth and have curbed purchasing of ore. The association also said that tin miners have pared back mining activity as demand from the smelters has dried up. January-June 2011 tin ore production was down 7.1% y-o-y to 39kt (thousand tonnes). The dampened demand outlook might have contributed to July's refined tin export volumes, when the country exported a total of 9.3kt, still up 4.5% year-on-year (y-o-y), but a sharp decline of 14.8% month-on-month (m-o-m) compared to June.


Big Two
Indonesia's Tin Production, 2010 (kt)

Source: Company reports, WBMS 

PT Timah Production Stagnant

H111 production figures for PT Timah, the world's largest tin miner, reflect the sentiment expressed by the Indonesian Tin Industry Association. H111 tin-in-concentrate production was 17.7kt, 0.6% higher than H110 production of 17.6kt. Despite the increase in onshore production for H111, the company is seeking to reduce dependence on onshore mining by increasing offshore production capacity. The company is also investing in a bucket wheel dredge to enable it to mine deeper, a sign of overall decreasing ore grades in Indonesia's tin mines.

Policy Changes

Indonesia is looking to revise its current tin export royalty scheme and plans to merge its domestic inter-island and international export royalty scheme, where royalties can be as high as 3.0%. Inter-island tin exporters now have to show proof of payment of royalty charges. The move is intended to stop transshipment practices of some traders that divert their domestic exports to international destinations. The change is also in line with the government's aim to increase tin export royalties as a share of total state revenue (currently at around 1.0%). As is the case in many other developing and resource-rich nations, the Indonesian government is trying to gain greater revenue from its mining sector.

We view the changes as a move by the Indonesian government to support its tin industries and to ensure that international export prices are not distorted by illegal miners and traders. Domestic shipments (which in the previous scheme were not charged international rates) illegally diverted to international destinations can drag down tin prices. The country made a similar move back in 2002 when it banned tin ore exports to discourage illegal mining and encourage domestic processing of tin.

Although it is likely that the royalty scheme change was already considered when tin prices were at historical highs during the earlier part of the year, we believe political will to implement such measures are strengthened when tin prices decline, as the government seeks to ensure that revenue from their key commodity remains at sustained levels.

Overall, we expect production to grow at an average annual growth rate of 2.1% to reach 93.2kt in the five years to 2015. We do not see strong growth over the forecast period due to the depletion of many onshore mines, restrictions governing offshore reserves, and the government's continued curbing of illegal tin miners.


Table: Tin production, 2008-2015










Tin output, kt









-% change y-o-y










f = forecast; na = not available. Sourse: BMI, WBMS


Related Reports:

Congo Mining Report Q4 2011;

Kazakhstan Mining Report Q4 2011;

India Mining Report Q4 2011;

Mongolia Mining Report Q4 2011;

Australia Mining Report Q4 2011;

Botswana Mining Report Q4 2011;

Ghana Mining Report Q4 2011;

Chile Mining Report Q4 2011;

Angola Mining Report Q4 2011;

China Mining Report Q4 2011.

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