Commodities: Devil of a quandary for the tin men

BOLIVIAN miners call it the 'devil's metal' - a well-deserved nickname. They work in some of the worst conditions imaginable, deep underground, high up in the Andes. But the devil is not looking after his own.

Tin, which on Friday dipped below dollars 5,000 a tonne on the London Metal Exchange, is at its cheapest for 20 years, and well below the break-even level for many of the world's producers. Some have already slashed output; high-cost Malaysia and Bolivia today mine less than half the metal they did at their peak.

Britain, which briefly re-emerged as a net exporter during the boom of the early 1980s, has only one tin mine in operation, South Crofty in Cornwall.

The tin bubble, which triggered a rapid expansion of mining and depressed demand by encouraging techniques that cut the amount of metal used for plating and by boosting aluminium consumption in the competitive packaging market, burst in 1985. Treaty-sanctioned buying operations to prop up prices came to an abrupt end with the bankruptcy of the overstretched International Tin Council, whose massive stockpile had to be liquidated.

Although a group of the world's producers have tried to counter the 'bearish' repercussions of this sell-off, current price levels show they have failed dismally.

The seven-nation Association of Tin Producing Countries has been restricting exports for six years, while non-members Brazil and China have supposedly been limiting their sales in solidarity. The ATPC's objective was to reduce world stocks from a record 100,000 tonnes to a 'normal' 20,000 tonnes, about 10 per cent of annual global consumption. But this is proving difficult: the ATPC has just reported that stocks rose in the first quarter to nearly 40,000 tonnes from 38,200 at the end of 1992.

The recession is partly to blame. Other reasons include the failure of China and Brazil to keep to export ceilings, recent cheap offers of metal from Russia and Vietnam, the regular releases from the US strategic stockpile and rising production in non-ATPC members, especially Portugal, Peru and Burma.

So it should come as no surprise that the ATPC is thinking of abandoning its export quota regime, in turn raising the threat of a free-for-all that has further undermined prices. The argument is that it makes no sense to go on fighting a losing battle, and that the market should decide which mining industries sink or swim.

Astonishingly, the ATPC's three leading members - Thailand, Indonesia and Malaysia - may now try to do for natural rubber what they have signally failed to achieve with tin. They are considering whether to turn the Association of Natural Rubber Producing Countries (ANRPC) into a cartel, a venture many experts believe could backfire.

'I don't think the market is going to believe that they can do it,' says Alec Gordon, rubber analyst at the London-based Economist Intelligence Unit, which this month relaunches its World Commodity Forecasts, containing far- from-rosy long-term price projections for rubber and tin. In Mr Gordon's view it does not make sense, either, to push up natural rubber prices when supplies of the synthetic substitute are so plentiful, risking a reversal of the trend of recent years towards increased use of the former at the expense of the latter.

ANRPC members are considering working together to protect their interests because of disenchantment with the International Natural Rubber Organisation based in Kuala Lumpur. They say this producer-consumer body, whose powers under treaty to buy surplus material are paralysed by a dispute over the minimum target price, has failed over the years to give them a good enough return on sales.

They want the accord either renegotiated to incoporate provisions to rectify this, or scrapped from the end of this year. A formal decision by the organisation's member governments on what should happen to the treaty, which can be extended for two years, is scheduled to be taken in November.

Many see the threat of a cartel as an attempt to frighten the US, the EC and others into dropping their opposition to renegotiation. If the producers do force the closure of the rubber organisation, its stockpile of 170,000 tonnes will have to be sold, a prospect adding to the depression in the oversupplied market.

Production is up sharply, especially in Thailand, Indonesia and India, despite prices around their lowest for 30 years in real terms. Demand from the motor industry, which takes 70 per cent of all natural rubber for tyres, has slowed because of the recession in Japan and Germany.

Ostensibly, the ANRPC should have no problems in controlling the market, as its members account for nearly 90 per cent of world production. The ATPC's share of tin output is about 60 per cent and Opec - the most famous cartel of all - produces only about 40 per cent of crude supplies. But history shows that, however propitious the circumstances, cartels do not work, something that coffee and cocoa producers, both considering unilateral measures to improve their lot, would do well to bear in mind. In the 1990s, as in the 1980s, the market still rules.