APRIL 1982 - VOLUME 3 - NUMBER 4
Tin Producers and Buyers Battle on the International Market
U.S. accused of foul play
Tin-producing nations including Malaysia, Thailand, Indonesia and Bolivia in mid-March accused the United States of "intransigence" and of negotiating in bad faith in connection with the sale of thousands of tons of tin from U.S. strategic stockpiles over the past several months.
At a meeting of the International Tin Council in London on March 8, Malaysia's primary industries minister, Datuk Paul Leong, charged that the U.S. has broken pledges it' made to tin-producing nations by flooding the market with its surplus tin, and has sabotaged the International Tin Agreement (ITA) which establishes guidelines for tin sales between tin producing and consuming countries.
And in Washington at a meeting between representatives of the Association of South East Asian Nations (ASEAN) and the U.S. State Department, on March 9-11, ASEAN delegates also strongly objected to U.S. tin sales.
The disruptions in the international price of tin caused by the U.S. tin sales have led to the closing down of more than 150 small tin mines in Malaysia, and nearly 10% of the labor force in the tin industry is now out of work in Malaysia alone, according to the Malaysian Mining Employers' Association.
In Bolivia, where miners have staged several wildcat strikes in recent months to protest government austerity measures and low wages, the industry has also been hurt by low international tin prices. Tin accounts for more than one-third of Bolivia's export earnings and is the nation's single largest export product.
The U.S. stockpile is managed by the General Services Administration (GSA).
Currently, 42,500 tons of the approximately 190,000 tons of tin in the stockpile are required by law to be kept in the stockpile in case of a national emergency.
The U.S. is the world's foremost consumer of tin, using about 60,000 of the 142,000 tons consumed annually worldwide - mainly in the steel industry and for tin cans. Consumption has been declining slowly. More than 80% of current world production comes from just four countries: Malaysia, Indonesia, Thailand and Bolivia.
Substantial portions of the tin industry are nationalized in Bolivia, Indonesia, and Malaysia. In Thailand, the Dutch firm Shell Billiton controls nearly the entire mining and smelting production. Other multinationals, such as Charter Consolidated (Britain), London Tin Corp. (Britain), Rio Tinto Zinc (Britain), Amalgamated Metal Corp. (West Germany), Broken Hill Proprietary (Australia), and Pacific Tin (U.S.A.), are involved to varying degrees in mining, smelting, and marketing tin from all producing countries.
When the U.S. government sells tin from its stockpile, it in effect is competing with these multinational metals firms. Said a Pacific Tin spokesperson, "the GSA is definitely part of the overall tin supply-demand situation."
GSA spokesperson Reed Long acknowledged that "just the fact that we have tin [in the stockpile] affects the market." But GSA officials insist that sales are only made from the stockpile when producing nations will not be harmed by the resulting price changes.
Tin producers disagree. David Wong, secretary-general of the Malaysian Mining Employers' Association, told Multinational Monitor, ". . . GSA sales [in early 1981) in a soft market and in full knowledge of an estimated surplus of some 6,400 tons... were entirely counter to repeated assurances by U.S. spokesmen that GSA tin sales would be conducted in a responsible manner. The U.S. has clearly breached, and is continuing to breach, her obligations under Article 43 of the 5th ITA" (which the U.S. signed in 1976).
The U.S. has refused to sign the 6th International Tin Agreement, which is to take effect when the 5th ITA expires at the end of June this year.
Since last July, producers' interests have been involved in some market manipulations of their own. "Mystery buyers," widely assumed to represent Malaysian tin mining firms, began buying large quantities of tin in mid-July in an effort to counteract the effects of the U.S. stockpile sales and force the price upward. They spent up to $12 billion in a period of six months, according to industry analysts, raising (he price of tin on the New York market from $6.02 a pound during the. first week of July, 1981, to nearly $7.70 by the end of November.
It was then that the GSA decided the buying spree had gone on long enough. On November 13, GSA commissioner Roy Markon notified the Armed Services committees of the U.S. Senate and House of Representatives, as required by law, that the GSA intended to sell tin from the strategic stockpile on the international market - not the domestic market, as is usual with stockpile sales.
The GSA had decided, Markon said in his letter to the Congressional committees, that "the offer of sales for export, as well as [for] domestic consumption, will increase the competition which is in the best interest of the government." He was referring to the U.S. government as a tin consumer, not a tin seller, since lower prices resulting from sales competition benefit users. The U.S. government uses roughly 10% of all tin sold to U.S. consumers.
No Congressmen or Senators objected to the GSA plan, and on December 14 the GSA began to move massive quantities of tin. Daily sales reached an all-time high of 900 tons on January 6, 1982, and the GSA sold thousands of tons of tin within a few weeks. By early March, the New York price had slid to less than $6.30 a ton.
The effect of this glut was to bail out tin traders like the German firm Metal Gesellschaft and various others who had underestimated the amount of money the "mystery buyers" had to spend and were holding out for lower prices before purchasing tin on the market to cover their contracts. They were suddenly able to buy from the GSA in order to meet their obligations.
The London Metals Exchange (LME), one of the three forums for tin trading (the others are in New York and Penang), also acted to help out traders who were caught short by the price rises caused by the "mystery buyers." In early February, it changed its rules concerning penalties for contractors unable to supply the metal they had agreed to provide on a given date. Traders would be liable for a maximum penalty of 120 British pounds per ton per day for late deliveries, the LME declared. (Previously, failure I to meet an obligation would have been grounds for legal action by the purchaser and perhaps even expulsion from the LME.)
Malaysian producers bitterly pointed out that this unprecedented "intervention in the market place" was not made even when speculation by the Hunt family caused wild fluctuations in the silver market in 1980.
Both producing and consuming nations have repeatedly accused each other of trying to manipulate the tin market, and to a certain extent the charges all seem to be true. But the GSA's ability to release huge quantities of tin onto the market almost at will gives the U.S. enormous control over the metal's price range - even within the framework of an international agreement between producers and consumers which is designed to buffer the shocks of the market.