The tin metal scheme that went wrong

A 29-year effort to “stabilize” tin prices collapsed in 1985, causing enormous financial losses by banks and metal dealers, some Canadian. The price plunged steeply. What happened?

The first International Tin Council (ITC) in 1956 included both tin-producing and tin-consuming countries, that is, governments. It set both floor and ceiling prices for tin and the zone between them was taken to be the “normal” price for tin.

The manager of ITC’s compulsory buffer stock was funded to intervene in the market by buying or selling tin to “adjust” the price from time to time. Each producing country was given a standard output quota. The U.S., a large consumer, joined in 1976.

To the delight of the tin producers, the price zoomed after 1972 from $3,700(US) per ton to $16,700 in 1981-82, but fell to the $12,800 level by 1982-83. ITC’s price “zone” became wider and wider from 1981, that is to a $3,800 “spread,” a figure equivalent to the entire tin price of nine years before. Outside production

The tin-price scheme appeared foolproof and eternal. However, these high tin prices stimulated tin production outside of the ITC membership. Brazil became prominent and Bolivia quit the ITC in 1982, and the non-members could obviously produce and sell as much tin as they liked.

It was, although few saw it, the beginning of the end for the scheme. There was an accumulation of a large worldwide excess of tin supply relative to the Western world demand, which had been declining steadily since 1973.

During this decline, the price of tin had quadrupled by 1981-82 and was still three times the 1972 price in 1982-83. Such an occurrence was totally illogical and ran counter to the laws of supply and demand, but the ITC appeared to have found a magic touch.

W. Keith Buck of Canada related that, before the end, from July, 1981, to February, 1982, there had been an attempt to “corner” the world tin market, raising the floor price far in excess of what it should be and that those price levels were held for far too long, encouraging too much production. No agreement

In October, 1985, the tin stockpile manager could not get the governments to agree on helping him raise $60 million to buy more tin, nor get the tin producers to curtail their tin output.

The U.K. government halted tin trading on the London Metal Exchange (LME) on Oct 24, 1985. The total tin debt to date was $1.3 billion(US). Now the creditors prepared a plan to sell off the formidable 85,000-ton ITC stockpile of surplus tin, held by the creditor institutions as collateral, over three years.

This process diluted the tin price further, of course, the exact opposite of what the major tin-producing countries would have wanted. But the majors were the ones which over-produced in the first place, creating a rod for their own backs. The ITC had precipitated its own terminal crisis.

In a free and random market from November, 1985, there were various tin prices and deals, but, in general, the price level by May, 1986, was roughly one-third to one- half of the price at the time the LME halted trading.

Annualized losses for Malaysia, Thailand, Australia, Zaire and Nigeria totalled almost $500 million. Malaysia shut down 213 of its 438 tin mines in 1985, firing 8,700 mine workers, and Thailand closed down 221 mines.

Thus ended the Great Tin Scheme, which basically self- destructed through greed, doing in yet another cartel-style international commodity combine.003 T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986.