rumor

Timah

Benefiting from recent developments in the tin industry

Demand-supply imbalances to keep the tin price high
Tin prices have held up well despite the slowdown in the global economy. The price of tin as quoted on the LME is now hovering at around $21,000/ton despite concerns of softening demand after a period of prolonged price increases.

A supply shortage is one of the main factors behind the strong uptrend in prices. According to the CRU, the total supply of tin will reach 343,500 tons in 2008, or significantly below the estimated demand of 361,500 tons. The supply shortage is mainly attributable to falling production in China and Indonesia .

On the demand side, according to CRU, global consumption will increase 1.7% this year, driven by the growth in China (7%) and other Asian countries (3%). Consumption in Japan is predicted to be stable, while consumption in Europe and USA is, in contrast, estimated to decline 3.5% and 8.5% respectively.

Indonesia’s bigger role in the international market
Currently, Indonesia is the world’s largest exporter of refined tin. Moreover, its role in the global market is becoming more important as China ’s exports continue to decline. Thus, if such trends continue, then Indonesian tin miners and producers - especially TINS - will have some power to influence the global supply, and thus the price of tin on the international market.

Potential upgrade on reserves
TINS is still in the process of reviewing its reserves. Based on the last calculation, its total reserves stood at 357 million tons using $5,000/ton as a price reference. Nonetheless, the findings of the review have not been released by the company. However, we do expect a significant upgrade on the reserves given that the current high tin price.

Making the right moves
Increasing the offshore production
TINS has been planning to boost the proportion of its tin ore production coming from offshore mining from 20% in 2007 to 50% by 2009. We consider this as an encouraging development, not only because the onshore reserves are depleting, but also because the current inland production cost ($13,000/ton - $14,000/ton) is far higher than the offshore production cost ($8,000/ton - $9,000/ton).

Expanding the business
After years of slow expansion, TINS plans to start expanding its business more aggressively. This year’s capital expenditure is estimated to be around Rp1.4 trillion ($151 million), or much higher than in previous years. Most of the money will be used to increase production capacity and to expand its downstream industries.
We view this offshore capacity expansion as a good way to increase the offshore production and to lower production costs. Furthermore, the company’s business expansion into downstream industries is well justified, we believe, given that tin solder is the major usage for tin (around 52% of tin is used for this application), while 13% of tin is used in tin chemical applications.