Crackdown by Indonesia sends tin prices to a 17-year high

The price of tin hit a 17-year high yesterday after a crackdown on illegal mining by the Indonesian authorities sparked fears of a supply shortage next year.

Indonesia, the world's second biggest producer, is banning all exports from unlicensed tin mines. It is also regulating the quality of exports, which must meet standards set by the London Metal Exchange to receive an export licence.

The moves will exacerbate supply problems, especially given China's increasing appetite for metals. The EU's ban on the use of lead in electrical components has also stimulated demand for tin, which is used instead of lead in solder.

Fears of the supply squeeze sparked a rally in the price of tin, which peaked at $11,800 a ton yesterday morning. By the close the price had fallen back to $11,575, up 75 cents on the previous day. The price has risen by almost 80 per cent in the past 12 months in response to Indonesia's attempt to tighten control of the industry.

Most analysts warned that the price of tin could remain high throughout 2007. "We were looking for the market to swing into surplus next year but if these restrictions continue it looks like the market will remain in deficit again which would be enough to hold prices at these levels," William Adams, an analyst at BaseMetals.com, said.

But others cautioned that the highs of the past two days might not last, given that they were struck during thin post-holiday trading.

The Indonesian authorities are trying to limit the environmental damage from illegal mines and channel production instead through the main producers. In October the country shut 32 tin smelters operating without permits, mostly on the island of Bangka.

Mr Adams said that eventually the big Indonesian producers would expand their operations to compensate for the loss of production. He expects a deficit of around 10,000 tons in 2006 to be mirrored in 2007.

Further support for the tin price has come from Bolivia, where president Evo Morales has moved towards nationalising the country's mines.