The Crushed Tin Cartel

By William J. Mitchell

Tin, the malleable metal that has been considered versatile enough for the coffins of kings in the 17th century and for cola cans in the 20th, is now in trouble in the marketplace. Trading in the commodity has been suspended on the London Metal Exchange since Oct. 24, and it remained unclear last week just when the buying and selling of tin will resume. Says Jacques Lion, chairman of the London Metal Exchange: "The global tin industry is in complete disarray." Some members of the 108-year-old exchange are suggesting that the time may have come for closing the London tin market.

Trading was halted after the International Tin Council, a cartel made up of 22 leading tin-producing and-consuming nations, found itself short of cash to finance its operation. While most commodity markets are vulnerable to volatile price swings, tin prices have been controlled by the London-based I.T.C. The cartel attempted to fix both the world supply and the price of tin, measures once considered beneficial to consumers of the metal as well as producers. It assigned production quotas to members and then bought up surplus tin whenever international prices fell below a certain level. The surplus metal was then gradually sold off during times of greater demand, when prices were higher. The cartel does not include all nations that mine or import tin. The U.S., the world's largest tin importer, has not been a member since 1982. Nonetheless, the organization for years was able to influence the world price for the metal.

During the past decade, however, the cartel has found it increasingly difficult to support prices because world demand for tin dropped while non-cartel countries were expanding production. Industrial use of tin slumped when manufacturers turned to other metals and plastic. Meanwhile, Brazil, not a member of the cartel, had become the world's fifth largest producer by 1984. The combination of decreased demand and increased production created a global oversupply of tin.

In order to finance its attempts to prop up prices, the tin council during the past several years borrowed nearly $500 million from 16 international financial institutions. The creditors, though, are setting tough terms for any future loans. Last week they said that they would postpone the dates for payment on past loans and offer short-and long-term financing needed to keep the cartel afloat, but only on condition that their loans were guaranteed by the 22 governments that make up the council.

A collapse of the cartel would hurt some producers much more than others. Guillermo Bedregal Gutierrez, the Bolivian Planning Minister, says the fall in tin prices could cost his poverty-ridden country $180 million a year in lost foreign-exchange earnings. But Thailand and Malaysia have managed to cushion themselves against the recent market glut and falling prices by steadily diversifying their economies.

No matter what happens to the current loans, the chances for the long-term preservation of the tin cartel appeared dim last week. Said William O'Neill, a metals analyst with New York's Rudolf Wolff Futures: "I expect to see fundamental changes in the way the market operates. We are certainly not anticipating a return to the old system of price supports." He and others predict that tin in the future will be traded much like copper or aluminum, in a free market without the help of a cartel. --By William J. Mitchell Reported by Frank Melville/London

With reporting by Reported by Frank Melville/London