TIN TRADERS' RESPONSE MUTED TO KL FUTURES MARKET
European free market tin traders made a
somewhat muted response to plans for a Kuala Lumpur
dollar-based tin futures market due to be launched in October.
    Traders said the new market would probably be a useful
trading medium for Japan and other South East Asian tin
interests although European traders generally appear to be
reasonably satisfied with the current "free market" system
which has been operating since London Metal Exchange, LME, tin
trading ceased in October 1985. Dealers here will also want to
see how acceptable foreign metal will be on the new market and
what sort of demand develops for forward deliveries.
    There is also a view among European traders that, while the
proposed Kuala Lumpur tin futures market would provide another
useful reference point, a market inaugurated by the Malaysian
government -- in the past viewed as a major player at times by
the trade -- would make participants uncomfortable.
    Some traders expressed a preference for a resumption of
trading on the London Metal Exchange, but they added that while
there has been some behind the scenes discussion on the subject
a definite move is unlikely until outstanding High Court
litigation actions have been resolved.
    Spot tin prices on the European free market are currently
around 4,200 stg per tonne for high grade metal in warehouse
Rotterdam. Over the past 18 months the price moved to a ten
year low of 3,400 stg in March 1986 and rebounded to as high as
4,680 stg in December 1986.
    This compares with 8,140 stg last paid when LME trading
ceased in October 1985 and a record high tin price of 10,350
stg traded for Cash Standard Grade metal in June of that year.
    LME warehouse stocks are now near a two-year low at 28,065
tonnes, having fallen steadily from a record high of 72,485
tonnes reached in February 1986.
    Traders said the free market turned bullish during late
last year based on producer forecasts of a supply/demand
deficit of some 28,000/29,000 tonnes. Analysts were predicting
prices of up to 5,000 stg per tonne during 1987.
    However, the trend was reversed following a strong upswing
in sterling versus the dollar and values fell back briefly to
4,100 stg last month after approaching 4,700 stg in December.
    The decline accelerated as producers who had sold very
little metal at the higher levels became competitive sellers.
    There was also a lack of significant demand from major
steel mills who made large purchases prior to the new year.
    Traders say the 15 ITC creditor banks' original tin
holdings of nearly 45,000 tonnes have now been almost halved,
and the bulk of material still available is being held by
Malaysian and Japanese firms which are reluctant to depress the
market with unwanted metal.
    Some 80,000 tonnes were held by banks and brokers after the
International Tin Council's, ITC, buffer stock manager halted
support operations on the LME on behalf of the 22 members
nations of the International Tin Agreement.
    The overhang of metal was reduced further by broker
Shearson Lehman Brothers, which earlier this year reported
having sold its ITC-related holdings and halved its overall tin
position.
    Analysts see no immediate sign of a rally in European tin
prices and movements are still expected to be largely related
to currency fluctuations, unless significant consumer demand
emerges for the third quarter.
    The Association of Tin Producing Countries, ATPC, has made
efforts since the collapse of the ITA to achieve higher world
prices by attempting to bring all major producers under an
export control umbrella, but to date Brazil and China, two
major producers, remain unaffected by the ATPC argument and
apparently are continuing to offer material at discounts to
consumers in main European trading centres, dealers said.
 Reuter
