Huge Losses Expected : London Market Near Deal to End Tin Crisis
In an atmosphere of acrimony and confusion, the London Metals Exchange is expected to end its century-long involvement in international tin trading today by settling all outstanding contracts at a single cash price of 6,250 pounds (about $9,062) per ton.
Contracts must be settled and the tin market closed by noon today.
The controversial move, which metals exchange sources say involves contracts totaling between 50,000 and 60,000 tons, follows the collapse of negotiations late last week aimed at ending the 4 1/2-month tin crisis.
Exchange officials estimate that the decision will cost metal trading companies dealing in tin an estimated $260 million and leave an assortment of banks, brokers and other tin traders with losses of more than $300 million.
One leading member of the exchange, Shearson Lehman Metals Ltd., has already announced that it plans a legal challenge to the exchange’s artificial settlement price. It is likely that other traders will take similar action.
Officials Defend Settlement
Philip Jevons, deputy chairman of Shearson Lehman Metals, has resigned his seat on the exchange board, exchange officials said Tuesday.
These officials defended the exchange’s shutdown of tin trading, claiming that the only other alternative--reopening trading and letting prices find their own level in a glutted world market--would have brought greater financial losses and prolonged the uncertainty that has eroded confidence in the trading of other metals on the exchange.
World tin markets have floundered since Oct. 24, when trading was suspended on the two principal exchanges in London and Kuala Lumpur, Malaysia. It was halted after the International Tin Council here announced that it had run out of funds in its attempt to support a minimum world price adopted by the 22 consumer and producer nations that make up its membership.
A few days before the London Metals Exchange’s unilateral action was announced last week, marathon talks were conducted among the tin council’s member nations, metals brokers and banks dealing in the metal. They came close to cobbling together an agreement to end the crisis.
Rescue Package Rejected
That accord would have created a new company, Tin Co., financed by tin council member nations, metals brokers and banks, to assume debts run up by the council while defending the minimum price. The buffer stock of tin employed by the tin council to control the world price would have been dispersed and trading would have resumed in an orderly fashion.
However, two major producers, Indonesia and Thailand, rejected the terms of the rescue package and talks collapsed.
The contract settlement price set by the London Metals Exchange is roughly 75% of that quoted on the day trading was suspended Oct. 24. But it is considerably higher than the 5,000 pounds (about $7,250) per metric ton quoted Tuesday on so-called gray markets in Western Europe. That price is similar to prices generated in tin trading in Kuala Lumpur.
Officially, the London Metals Exchange action leaves tin trading suspended, but there is little likelihood of any quick resumption. Some experts believe it may never resume. The action is unprecedented in the exchange’s 109-year history and carries serious implications. Among them:
- The contract settlement price and sagging gray-market prices will force the closure of unprofitable tin mines and cost thousands of jobs in key producer countries. For countries such as Indonesia and Malaysia, where tin is an important foreign exchange earner, it is bound to have adverse economic effects.
- The failure to resolve the crisis without major losses on the part of those involved in tin trading is likely to diminish confidence in the trading of other metals. Indeed, traders report that trading volume in copper and other metals on the London Metals Exchange is down sharply in recent months, and they cite the uncertainty surrounding the tin crisis as an important factor.
- The failure of the 22 member countries of the International Tin Council to meet the debts of their organization is likely to raise questions about the viability of similar councils governing trading in such commodities as cocoa and sugar. Before its troubles began, the tin council was held up as a model of a successful commodity cartel.
