Tin Traders Seek Funds to Reopen Market : 22 Nations to Meet Today in Bid to Resolve Crisis

In the latest of a series of crisis meetings following the collapse two weeks ago of world trading in tin, the firms that make up the London Metals Exchange called on their parent companies Tuesday to support an effort to get the market going again.

Representatives of the firms argued that a commitment from their parent corporations, which include Royal Dutch Shell and Mitsubishi, to make up losses caused by the crisis would help restore confidence in the exchange and facilitate the orderly reopening of trading in tin.

Trading was suspended Oct. 24 in the world’s two major market centers, London and Kuala Lumpur, Malaysia, when the International Tin Council announced that it had run out of money in its effort to support the minimum world price agreed to by the council’s 22 member nations.

Cartel Had Been Successful

Amid mounting political pressures, representatives of the 22 nations will meet here today in a second emergency session to seek a formula that will permit an orderly resumption of trading.

Until the crisis, the International Tin Council had been regarded as one of the most successful of the commodity cartels, in which leading producer and consumer countries fix prices to prevent wild fluctuations and economic uncertainty.

The council has controlled the world price of tin by maintaining a large stockpile and releasing metal onto the market when the price rises and buying it up when the price declines. As the council sought to defend the minimum price, its stockpile had risen to about 65,000 tons from less than 2,500 tons in 1981.

A combination of factors, including the substitution of aluminum for tin in food containers, the emergence of new producer countries such as Brazil, which are not bound by council production quotas, and lively smuggling activity have all contributed to a world tin glut in recent years.

The council’s performance over the past 29 years had made it an excellent credit risk, and banks and metals brokers had been quick to provide it with funds. When chronic global overproduction exhausted the council’s stock on Oct. 24, the council owed between $100 million and $450 million to bankers and brokers dealing on the London Metals Exchange.

As uncertainty persists over how this deficit is to be made up, shock waves from the crisis continue to reverberate around the world. Unless trading is resumed quickly, vital exports and thousands of mining jobs in key producer countries, including Malaysia, Thailand and Indonesia, could be jeopardized.

The tin crisis has also caused concern in other metals markets; New York traders said it has created selling pressure on precious metals that contributed to a $1-per-ounce drop in spot gold prices Tuesday. And the crisis has raised financial questions not only in connection with the London Metals Exchange but with the standing of London as a financial center.

“People who have dealt on the exchange in good faith have been left wondering for nearly two weeks now if they are going to get their money,” said David Williamson, research director for the American Express subsidiary Shearson Lehman Bros. “The longer this goes on, the more damaging it becomes to everyone concerned.”

Tuesday’s traders’ meeting and the proposal for large corporate backing was aimed mainly at rebuilding faith in the exchange. It followed an agreement reached Monday night with a group of 16 major creditor banks to defer repayments and interest charges on all outstanding credits if the council’s 22 member governments will guarantee the council’s solvency.

Specifically, the creditor banks demanded that the producer nations come up with the equivalent of $90 million in stockpile support funds promised last September but still undelivered and that all 22 member governments guarantee outstanding loans and give the council adequate funds to support future operations.

The council is expected to discuss the proposal at today’s emergency meeting. Metal trading sources here believe that what the council does today could decide whether tin trading resumes in an orderly, controlled manner or whether it degenerates into chaos.

Reaction to the creditor banks’ proposal was clearly positive at the meeting Monday of the London Metals Exchange traders, but how the council will react is not at all clear. At its first emergency session last week, council members rejected proposals to meet even the council’s present debt.

Whatever the outcome, few London traders interviewed Tuesday expressed any confidence that the price of 8,140 per metric ton (about $11,621) can be sustained. Some traders believe that a free market would support a price of only around 4,000 per metric ton, but it does not seem likely that the council, if it can reach some kind of agreement, will let the price fall to that level.

Meanwhile, those who sold tin on Oct. 24 at the suspended price remain in a kind of economic limbo, wondering if they will be paid.