THE WORLD TIN MARKET: SOME IMPLICATIONS FOR US STOCK DISPOSALS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010026-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 26
• Publication Date: May 1, 1971
• Content Type: IM

A / /
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25X1
Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The World Tin Market:
Some Implications For US Stock Disposals
Confidential
ER IM 71-75
May 1971
Copy N? 79
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WARNING
This document contains information alfeclinb the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of' its contents to or re-
ceipt by an unauthorized person is prohibited by law.
It GRDUI` t
I EM(tuiI,?d (,nn, oelnmt,!;
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
May 1971
THE WORLD TIN MARKET:
SOME IMPLICATIONS FOR US STOCK DISPOSALS
Introduction
1. The US Government has been considering plans to reduce its tin
stockpile by about 20,000 long tons. Although these plans have been
temporarily shelved, major world producers are concerned over the impact
on their economies should US surplus sales be resumed. Bolivia has been
the most outspoken in its opposition, arguing that sales would depress world
market prices sharply. This memorandum examines world tin market trends,
assesses the outlook for tin prices over the next several years, considering
the likely effect of any releases, and estimates the impact on major exporting
countries.
Discussion
The World Tin Industry
2. Six countries have about 95% of proved Free World tin reserves
and provide a like proportion of exports. Malaysia, by far the leading
producer, accounted for 41% of Free World production in 1969 and
second-ranking Bolivia 17% (see Figure 1). Four other major producers,
Tk,ailand, Indonesia, Nigeria, and Congo (Kinshasa), account for 30% of
production. The remaining 12`Io is produced mainly by countries such as
Note: This inen orandrun was prepared by the Office of L'conomic
Research and coordinated within the Directorate of Intelligence.
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Australia, Brazil South Africa, and the United Kingdom, which consume
most of their output domestically. The Communist countries coNectively
are largely self-sufficient, although they have become substantial net tin
importers in recent years. In 1969 they purchased roughly 10% of Free
World tin metal exports.
1950
Nigerian Nigeria
3. More than two-thirds of the Free World's known reserves are
found along the river beds, delta regions, and adjacent offshore areas in
Southeast Asia. These deposits have the highest metal content and are the
least costly to exploit. Dredging and placer mining are the region's most
common, types of operations. 11 Both involve few people and require
relatively small amounts of capital. In Africa and Bolivia, on the other hand,
tin is extracted from underground either by open-cast or shaft mining
depending on the depth of Io,les. The metal content of these deposits is
lower than in Southeast Asia, and substantially more capital and labor are
required.
1. Placer ruining involves turning deposits into a slurry form which
cascades down a trough, separating the tin concentrates from other matter.
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4. Almost all ores are smelted locally. In fact, Malaysia accounts
for more than half of Free World smelter production, processing local ores
and some of those mined in Indonesia and Australia as well. Bolivia still
ships ores mainly to smelters in the United States and to the United
Kingdom, but a smelter completed in 1970 will eventually process most
local ores.
5. Free World producers have banded together to regulate the tin
trade. Actual market control is handled by the London-based International
Tin Council (ITC), formed in July 1956.2/ It establishes world ceiling and
floor prices for tin, and it can use, if necessary, export controls any' a
tin buffer stock to maintain prices within the band. Although consumers
and producers have an equal vote on the council, decisions almost always
favor producing countries. On major issues they vote virtually as a bloc
and more often than not they can get at least one consuming country to
vote their way.
Postwar Trends
6. Free World production and consumption have grown slowly --
on the average about 1% annually - during the period since World War
11, but growth has been uneven. During most of the 1950s production was
about stable in spite of large-scale US tin stockpiling. The end of US
stockpile accumulation plus temporary heavy Communist sales to the West
in the late 1950s created a surplus and forced production cutbacks.
Production recovered in the early 1960s, and continued to grow rapidly
through 1968, largely in response to booming Japanese demand. In 1969,
production declined slightly, mainly due to the joint action of producers
desiring to support prices. The market tightened considerably in 1970.
7. Only Malaysia and Thailand, among the six top producers, have
increased output since 1950. Between 1950 and 1968 their combined
production rose about 45%. Since 1968, however, their output has fallen
slightly (see Figure 2). Political and economic chaos held production down
2. The ITC was formed under the First International Tin Agreement,
which went into effect in 1956. Subsequent agreements came into force
in 1961 and /966. The Fourth International Tin Agreement has already
been negotiated and will become effective in July 1971. Producing members
under the Fourth Agreement will include Malaysia, Bolivia, Indonesia,
Thailand, Nigeria, Congo (K), and Australia. All major consuming countries
except the United States will be members. The major change in membership
from the previous International Agreement will be the addition of the USSR
and West Germany as consuming countries and Australia's shift J'ront a
consuming to a producing country.
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Production of Tin-in-Concentrates by Major Producers
Thousand Long Tons
80
1950 51 52 53 54 55 58 57 58 59 60 61 62 63 64 65 86 67 68 89 70
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in Bolivia, Indonesia, and Congo (K), and in spite of some recent
improvements their combined output of tin-in-concentrates in 1969 was
still one-third below the 1950 level. Nigerian production in recent years
also fell, partly because of the civil war there.
8. Among the major consuming countries, only Japan has
substantially increased consumption during the past two decades (see Figure
3). Indeed, Japan accounted for virtually all the increase during the 1960s
and is now the world's second largest tin market. Consumption in the United
States, by far the largest market, declined sharply between 1950 and 1960
and has since risen only slightly. The reverse occurred in Western Europe
where consumption rose during the 1950s but declined by about 10%
between 1960 and 1969.
Primary Tin Metal Consumption
in the Free World
(Annual Average)
160 /
Japan
European
Community
United
Kingdom
United
States
13%
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9. The slow growth in tin demand largely reflects both the
substitution of other materials and more efficient manufacturing techniques.
Tinplate production -- which accounts for more than half of tin used --
increased very slowly during the 1960s because of competition from less
expensive aluminum and tin-free-steel (TFS).3/ Moreover, the adoption of
electrolytic processing has reduced tin requirements for each ton of tinplate
by almost 15% since 1960 and 35% since 1950.4/ Consumption of tin for
solder, which absorbs almost 20% of tin supplies, has also stagnated over
the years. The development of electron beam and spot-welding, printed
circuitry, and plastic tubing has either eliminated the need for solder or
sharply reduced its consumption in many industries.
10. Tin prices have moved upward despite the slow growth of demand.
After remaining within a range of about $0.90-$1.00 per pound 5/ from
1955 to 1960, prices turned tip during the first half of the 1960s when
production failed to meet demand. Most of the price increase occurred
during 1964 and 1965.6/ In the latter year the average price reached a
record of $1.76 a pound. During the next few years prices fell steadily
to an average of $1.42 in 1968 as production outpaced demand, but
rebounded in 1969 and 1970. Last year the price averaged $1.67 per pound
and has remained near that level in recent months (see Figure 4).
11. Besides politically disruptive events which affected production,
the upward price movement reflected operations of the International Tin
Council. The ITC steadily raised the floor price for tin during the past
decade from 910 per pound in 1960 to $1.47 in late 1970. When prices
3. By the end of the 1960s, aluminum and tin free-steel were accounting
for about 20% of US can production, compared with practically none in
1960.
4. Electrolytic tin-plating requires approximately 5 to 15 pounds of tin
per long ton of tinplate. This compares with 25 to 35 pounds of tin required
when the older hot-dipped process is used. In 1960, approximately 80%
of Free World tinplate production used the electrolytic process, but by
1968 the share had risen to over 90%.
5. All price data in this memorandum ,re average London Metal Exchange
cash prices for tin metal.
6. Actually, prices began their steep climb during the last quarter of /963
and partly reflect Indonesia's confrontation policy with Malaysia .ud the
suspension of trade ties beginning in September 1963. ",,w then all
Indonesia s tin concentrates were sent to Malaysia for smelting. Although
Indonesia shipped its ore to the Netherlands after relations with Malaysia
were broken, the interruption in trade patterns certainly helped set the
price rise in motion.
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Tin Metal Prices
Dollars Per Pound
2.00 r------
Monthly Average
London Metal Exchange Cash Price
Annual Average
7 _
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neared the floor level, the ITC imposed export controls and made some
buffer stock purchases. Export restrictions have been the main tool and
in the past 15 years quotas were imposed twice - during 1958-60 and
1968-69. The 1968-69 quotas caused tin metal production to drop about
3% in 1969, while other factors, such as reduced operations at the United
States' only smelter, caused an additional 2% fall. This plus an unusually
large 4% rise in consumption underlies the 1969-70 price increases.
12. The ITC ha- had little trouble mahitaining the floor price, but
prices have frequently exceeded the ceilings set by the ITC. Although the
tin buffer stock is used to help minimize price fluctuations and keep them
within the ceiling-floor range, stockpile operations have been largely
ineffective when working against price increases. The problem is that the
buffer stock was never very sizable, rarely exceeding 10,000 tons and more
often than not standing at less than 5,000 tons, or about 3% of
consumption. Indeed, after the sale of some 4,000 tons in early 1970, the
buffer stock was almost completely exhausted.
Impact on Major Tin Producers
13. Bolivia is by far lie producing country most dependent on tin
exports - tin accounts for about one-half of export earnings and directly
almost 10% of gross national product (GNP). Tin is also important in
Malaysia and Thailand where it provided 18% and I1%, respectively, of
total export earnings in 1969 (see Figure 5). For most other major exporting
countries, tin exports are relatively unimportant. Tin accounts for only
about 5% of Indonesian export earnings and an even smaller share of
Nigerian and Congolese exports. In none of these countries does tin
production contribute more than 1% to GNP.
14. Bolivian production dropped sharply after major tin mines were
nationalized in 1952. Although rising tin prices during the 1960s stimulated
Bolivia's output, the industry has not reached the level of production set
in the early 1950s. Investment has been only sufficient to cover
maintenance, and except for a few small private operations, no new mines
have been opened in more than 20 years. Labor strife and gross
mismanagement have hampered operations especially in the nationalized
mines. These problems are somewhat less serious for the private mines,
which account for about 35% of total production.
15. Bolivia is now the world's highest cost producer. Despite a general
improvement in the latter 1960s, production costs in government mines,
averaging about $1.50 a pound 7/ last year, are still out of line with those
7. Including export taxes, transportation costs, and smelting costs.
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Major Tin Exporting Countries
(Tin exports as percent of total exports)
86
h
"Data not available for 1960
of other producing countries. Wage rates are inordinately high in relation
to productivity and the wages of competitors - averaging nearly $100
monthly or about one-third higher than in Malaysia - and featherbedding
is widespread. During 1970 there were an average of two aboveground
workers for every underground miner compared with the relationship of
less than I to 1 that existed before the mines were nationalized. Political
factors prevent any significant labor force or wage reductions, and perhaps
half a dozen government mines accounting for about one-third of
state-owned output operated at a loss last year. Because of high costs the
Bolivian government earns little income from the tin industry and therefore
has few resources to invest elsewhere. At the same time, political instability
discouraged private investment. In consequence, Bolivia has achieved little
economic growth or diversification.
16. In Malaysia and Thailand the tin industry prospered during the
1960s. Foreign-owned operations were not interfered with and their output
has been maintained at fairly high levels. In both countries the bulk of
the increase in production during the 1960s came from the growing number
of small-scale producers who were attracted by higher world prices. Between
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1960 and 1968 the number of these operations in Malaysia, mainly
Chinese-owned, about doubled and their output rose more than 120'/,.
17. Although unit costs have risen over the years as ore grades
declined, tin mining in both countries is still highly profitable,. Some
Malaysian dredging companies, for example, reported after-tax profits equ. !
to approximately 2011o of gross sales during 1968-69. The comparable figure
for the small placer mines is probably much less because they frequently
work lower grade deposits and output per person is only about half that
of' the dredging sector. Even so, industrywide production costs probably
average between $1.00 and $1.20 per pound of tin.
18. The good performance of Malaysia's tin industry, while important,
has not been crucial to the country's substantial economic progress. Actually
the industry employs less than 2% of the labor force and output rose only
about 3.51% annually - little more than hall' the rate of real GNP growth
during the 1960s. The main factors underlying the country's expansion were
development of' new commodities, such as timber and palm oil, and a
booming manufacturing sector. The chief' contribution of tin was to enable
the country to maintain a high level of export earnings. Receipts from tin
exports more than doubled during the I 960s, with higher prices accounting
for 70% of the increase, and consequently Malaysia was able to rapidly
build up its foreign exchange holdings. These amounted to about $940
million at the end of 1970 - equal to eight months of imports.
19. Thailand also achieved a very satisfactory economic growth rate
during the 1960s. Production of many commodities grew rapidly and the
country benefited from US Vietnam-related military spending. Thailand's
export earnings increased considerably between 1960 and 1969 -- about
6'%% annually. Although tin exports tripled in value during this period they
accounted for only about one-sixth of the total rise in exports and tin
still contributes little more than No of GNP.
The US Tin Stockpile
20. In 1970, with world tin prices at a relatively high level, the United
States made known it was considering resuming tin disposals from the
strategic stockpile. The stockpile, built up rapidly during and after the
Korean War, reached more than 350,000 tons or nearly a seven year supply
for the United States by the end of the 1950s. Some disposals were made
through the US aid program during 1960-61 and in 1962 large-scale
commercial sales were begun partly because of reduced requirements but
also to help offset the gap between world production and demand. Deliveries
totaled abuut 100,000 tons between 1962 and mid-? 968, when commercial
sales were suspended because of the fall in world market prices. Although
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some aid disposals have been made since then, the stockpile has not been
reduced significantly and currently stands at about 252,000 tons and is
worth about $900 million at today's prices.
21. Initially, plans called for reducing the stockpile by about 20,000
tons to 232,000 tons. The sales were to be made over roughly a four-year
period beginning around mid-1971. The prospect of new commercial sales,
however, stirred an immediate reaction from Bolivia which felt that the
sales would depress prices and in turn seriously hurt its already wear% tin
industry. Indeed, La Paz threatened to nationalize remaining US mining
operations in the country in retaliation for any commercial stock sales.
Other major producers also opposed commercial stock releases. Stock
disposal plans were put in abeyance in early April 1971.
22. Although no commercial sales from the US stockpile have been
made, the news that such sales were being considered affected prices. On
the London Metal Exchange price quotations fell by about 5%% during June
1970 in the wake of rumors that US sales were in the offing. Prices recovered
somewhat in the next few months but declined again in November when
it was announced that a Congressional inquiry into tin stock disposal plans
would be held. A similar reaction occurred in
early April
1971
when
Bolivia's President Torres leaked a press story
of imminsit
US
stock
disposals. These movements reflect the highly speculative nature of world
tin exchanges.
Outlook
23. A sharp drop in tin prices during the next several years seems
unlikely whether or not US stock disposals are resumed. Last year, tin metal
production fell short of consumption by about 6,000 tons, or 3%, and
the difference was made up by drawdowns from commercial stocks which
now stand at or near a 15-year low. With world production and consumption
(including net sales to Communist countries) expected to grow about 1%
annually through 1975, US stock sales would nearly offset the shortfall
in the supply.
24. Tin consumption in the United States will either stagnate or
decline during the coming years because of inc--easing competition from
`her materials. Aluminum and tin-free-steel are expected to reduce demand
for tinplate, and in fact several US tinplate producers shut down operations
in the past year or so. Other major tin consumers, such as Japan and West
Germany, will also be making greater use of tin substitutes during the
coming years, but their overall demand for tin is expected to in ercase as
their canning industries expand. Consumption in Communist countries is
likely to grow somewhat faster than their production, and net imports from
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the West thus will increase. Under these circumstances, overall demand for
Free World tin will probably increase to nearly 200,000 tons by 1975,
compared with about 187,000 tons in 1969.
25. Production could incrc.ise considerably faster than demand, but
this seems unlikely. Malaysia and'I'hailand are in an especially good position
to raise their output. Recent technological innovations in dredging will allow
mining of deep offshore deposits which contain high-grade ores, and newly
developed excavating techniques can prolong Ow IiI'c of placer mines. Beth
countries, however, watch the world tin market closely and are unlikely
io grant new mining licenses if it me?ins upsetting tine balance. Beyond
this, other major producers will have trouble raising their output. Indonesia's
rehabilitation program is moving ahead only slowly, and no increase in
output is expected from either Nigeria or Congo (K). Ilol:via will he hard
pressed to maintain even present output levels through the mid-1970s.
Known reserves at the large Catavi mine are almost exhausted, an(1 renewed
labor strife and government takeovers of some private mining operations
are distinct possibilities.
26. The producing countries themselves are in an excellent position
to prevent any sustained drop in prices. The buffer stc?,:k is now very low
and the ITC could purchase up to 20,000 tons of till - roughly equivalent
to planned US sales if stockpile disposals are resumed. Use of the buffer
sleek has recently been made easier because the International Monetary
F,nul (IMF) has agreed to help finance ccnin,ry contributions.8/ It necessary,
export controls can be adopted.
27. The producers protected themselves from a sharp price decline
when they raised the ITC floor price about 7,',, to $1.47 a pound in October
1970. The actic.n was probably made with an eye toward holstering the
tin market in the wa:.:e of possible US stock releases and perhaps forestalling
any commercial sales. According to a 1966 understanding with the 1T('
ti-,c United States stated it would do nothing inconsistent with tilt,
"contingency operations" of the lT('. Although this statement has no precise
meaning, under earlier disposal programs it meant that if the 1'I'(' was
purchasing in the market, the United States would not sell stocks. By raising
the floor price, producing countries ;lave insured that the ITC would enter
the market at an earlier point than before.
28. For producers the range of' foreign exchange earnings from tin
is relatively narrow. With prices at the present ITC floor and with stagnating
8. I/tIF assistance would be aruilahle fur countries e.vperieneing
bala--ce-of-pu-'rnents problems and thus would be of .c/)eciul.SigiliJirunce. fur
Bolivia.
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tilt consumption, earnings at their lowest v'o-dd he at roughly the I968
level through 1975. The best likely situation would he it I';, ;u;nual increase
in world demand and prices at near the 1970 level ref around $ 1.0 7 it pound.
In that case, earnings in file next few years would increase very slowly.
Malaysia and 'T'hailand will probably obtain almost all the benefits front
the expected small increase in world fin demand as the only major producers
likely to increase output.
Conclusions
29. Free World tin consumption grew slowly during the !%Os -- by
only about I', annually -- but prices rose sharply as production felt short
of demand during most of the decade. The major cause of this development
was booming denuntd in Japan and production problems in Bolivia,
Indonesia, and Congo (K) where the tin industry was hard lilt by years
of political and economic instability. The upward price movement was also
supported by operations of the International Tin ('ouncil, which steadily
raised the floor price for tin throughout the decade and which in the late
1960s imposed export quotas to holster sagging prices.
30. All producing countries benefited from rising prices, which in
1969 aver?a,,ed 55;i above the 19(+0 level. Malaysia and Thailand were the
chief' gainers because of' low production costs and expan.,utn of capacity
in their tin industries. In neither county. however, was tin a very important
factor in their substantial economic prog.ess. In the case of Boli?ri,., the
country most dependent on tin, high production costs keep earnings Irons
tin low and the economy has barely made tap losses resulting front the
political md economic chaos ol, the I950s,
31. The rel:ltivrly Itilth tin prices of recent year', are litre lv to he
it..aintained over file next several years whether or not the United States
resume:; co-urncr;ial stock disposals. Releases, from I IS stocks at levels bring
considered in early 1971 would add only marginally to supplies from new
production, which will probably he slightly below tin consumption. If'
supi,ly were to outpace the expected slow growth in de:ra;uul, producing,
countries would likely restrict cxports. Moreover, the II(' has raised its
floor price to a record $1..17 a pound and is in a good position to maintain
this price. With its buffer stock largely exhausted the I F(' can. i6' rxccssarv,
buy tin for at fca!tt three year, at rates equivalent to the proposed (IS
stock plc releases.
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