LME moves to calm tin market

Press, 6 February 1982, Page 17

LME moves to calm tin market

Dealers said that the high price of tin could even justify the air freighting of tin from the United States, where the government has been selling from its stockpiles. A seller can make deliveries of tin only when he holds ingots in specific warehouses. Most metal is kept in Rotterdam. The main measure taken by the LME committee is to set a maximum backwardation of £l2O (SNZ276) a day. A backwardation occurs when the cash price of a commodity is higher than forward prices. The latter are normally higher because they include’ storage, financing. insurance and other costs. No delay is normally permitted under LME rules. Dealers, who had thought the penalty might have to be paid for only a day or so. expressed concern yesterday about the late arrival o’f some ships carrying tin from

the United States. They said that this could lead to the mystery buyer collecting penalty payments well into March.’ Mr Philip Smith, chairman of the LME board, emphasised that the limit, which he described as an “understanding," did not mean that the difference on any day between a cash and a forward price could not be more than £l2O. Instead, a seller who is unable to fulfil his commitments by covering his position in the market — entering into a buy contract which effectively cancels his sell contract — can default for a day by paying £l2O premium to the party to whom he agreed to sell the tin. This measure, which Mr Smith said was unprecedented in the LME’s history, arose from discussions which the LME committee held in recent weeks with LME members.

But the immediate reason for the move is that at least two shiploads of tin have been delayed. The physical tin is needed by those speculators whose threemonth forward sell contracts fall due on February 25 and 26. The backwardation limit comes into force yesterday. The fears of financial distress and disturbances on the tin market date from the end of November. Heavy buyers of tin, believed to be backed by producers, particularly Malaysia, then switched from buying forward tin to cash tin. This created the backwardation. so that on Wednesday cash tin in London was £ 8605 ($19,792) a tonne while the three-month metal was £ 7972 ($18,336). Speculators, who market traders believe to be mainly foreign, did not think this backwardation could be held, so they went short.