Tumbling Indonesian tin exports could short-circuit electronics industry
* Tin buyers unable to agree 2014 term shipments
* Indonesia usually supplies more than a quarter of world exports
* Tin supplies critical for Japanese and Korean electronics firms
* Risk if supply problems persist beyond a few months
SINGAPORE/JAKARTA Oct 11 (Reuters) - Tin buyers are becoming increasingly nervous about securing enough of the metal in coming months to supply industries such as electronics, after new Indonesian trading rules cut shipments by the world's biggest exporter nearly 90 percent last month.
More than half of global tin goes into solder used in electronics, to make circuit boards for products ranging from smartphones to tablets produced by firms such as Blackberry and LG Electronics. Tin is also widely used in food packaging as a protective coating to line containers.
Fearing disruption, tin suppliers snapped up record Indonesian stocks in the first half of the year, and have ample metal on hand for the next one to two months, traders said.
Further out, however, there could be a threat to the operations of electronics makers if export problems persist.
"The biggest issue is for the consumers in Asia, where Indonesia is two thirds of supply in some cases," said Peter Kettle of global industry group ITRI.
"For somewhere like Japan or Korea, Indonesia is absolutely critical and there is just not enough tin around from other sources to replace it," he added.
A major Japanese solder maker, which buys tin from Indonesia, said it was carefully watching how things develop.
Indonesia brought in new rules on Aug. 30 to force tin ingot shipments to trade via a local exchange before export. The new policy aimed at giving Jakarta greater influence over prices has slashed trade and meant that the long-established process of buyers and sellers agreeing term deals has stalled.
PT Timah, Indonesia's biggest tin exporter, in late August declared force majeure on shipments as its buyers had not joined the Indonesian Commodity and Derivative Exchange (ICDX), the only approved exchange for tin trade.
The stand-off with tin buyers, some of whom are reluctant to use an exchange still establishing itself, helped push September exports down to 786 tonnes last month, from more than 6,000 tonnes in August, the lowest since early 2007.
Benchmark tin prices on the London Metal Exchange have climbed by more than 10 percent since late August as buyers stocked up due to worries about Indonesian supply, helping make it the best performer in a weak base metals complex this year.
Some buyers are waiting things out in the hope that Indonesia relaxes rules to revive exports, to help cash-starved producers.
"People are worried about it but they're not panicking yet because recent history suggests that the Indonesians will find a way -- it's just a question of how long that takes," said Leon Westgate at Standard Bank in London.
A tin consumer who buys from Indonesia and sells products to electronics companies said the firm was already looking for alternative sources of supply, though these appear limited.
"We have a deadline -- everything has to be decided by mid-November," he added, referring to the latest point his company must secure its monthly supply deals for 2014 shipments.
MAKE TIN A MODEL
At the metals industry's biggest event in London this week, the consensus was that Indonesia would give some ground to allow exports to flow.
But some traders noted a concern that Jakarta would hold out in order to make tin a model of how it intended to squeeze more from other commodities exports.
Indonesia has long sought to have a greater sway over global tin prices through trading at home, with officials complaining that speculators have too much influence over LME prices.
An Indonesian regulatory official last month said that tin trading rules were designed to boost prices, but some traders said because Indonesia's physical tin contract did not have futures it was tough to hedge and lacked sufficient trade.
ICDX's most liquid contract traded 159 lots (795 tonnes) in September compared to 195,084 lots (975,420 tonnes) traded on the LME.
The Indonesian exchange's chief executive Megain Widjaja said via email ICDX did plan to introduce futures contracts and said there should be alternative ways to hedge in the meantime.
Indonesia in July also issued rules on new purity levels to lower lead content in tin exports with the aim of boosting the value of exports.
But under the new trading rules, buyers can no longer choose the specific brand of metal they get, meaning some traders said there is a risk the tin they get via the exchange may have impurities that make it useless for consumers.
Widjaja of ICDX said the purity of the metal was guaranteed by a ministerial decree and checked by surveyors, while it also carried out its own checks.
A QUARTER OF WORLD SUPPLY
Indonesia usually exports around 100,000 tonnes of tin a year, more than a quarter of the world's supply, selling to buyers in Japan, China, Malaysia, Thailand and Singapore.
Tin stocks in LME warehouses have slumped by 15 percent since the new rules came into play to hit nine-month lows of around 13,000 tonnes and there are few readily available alternative sources of tin globally.
So far, there is no sign of a desperate scramble to buy stocks that could show up as cash futures prices trading at a premium to three-month futures prices, known as backwardation.
But a metals trader at a Western bank said beyond a month or so supply risks were rising.
"We need to follow up quite carefully on what will happen in the next few weeks and then if there is no change, it's going to be a bit more worrying for the rest of the big players."