As the world’s second largest tin producer, Indonesia is keen on having the country’s tin price serve as the reference for the global price of the metal commodity by offering a futures contract, in addition to spot contracts.

To enable the country to become a price marker, the existence of a tin futures contract is important, Indonesia Commodity and Derivatives Exchange (ICDX) president director Lamon Rutten said on Monday in Nusa Dua, Bali.

“Without the tin futures contract, Indonesia’s tin price will not become the global reference price […] Now [in ICDX] there is only spot price, but not many people want to buy at spot price. They are buying for the future,” he said on the sidelines of the Indonesia Tin Conference and Exhibition (ITCE) 2017 on Monday.

A tin futures contract allows buyers to buy or sell tin on a set date in the future, at a fixed price today. It is useful for hedging against the swing of tin prices by locking in the price of the commodity.

At present, Rutten further said, only London Metal Exchange (LME) in London, England, offered a tin futures contract. Kuala Lumpur Tin Market (KLTM) also trades tin, but has yet to overtake LME’s dominant role in the global tin market.

ICDX predicts it will take until December for the bourse to start offering the futures contract, after it obtains permits from the Former Futures Exchange Supervisory Board (BAPPEBTI).

The offering a futures contract is also possible for ICDX through the creation of a bonded logistics center warehouse through its subsidiary PT ICDX Bonded Logistics (ILB).

Commodities stored in the warehouse will be treated as exported goods and, thus, will be free to leave the country without a customs clearance.

“With the bonded logistics center, companies can store their tin there. The tin that is stocked in the logistics center can then be sold using the futures contract system,” Rutten said.

ICDX targets the operation of a bonded logistics center by November this year. Currently, it is still waiting for the issuance of necessary instructions and technical guidance from the Customs and Excise Agency.

“[The Customs and Excise Agency] said that if we want to run the bonded logistics center now, we have to use the manual process. As it could slow down the export process, we chose to wait [for technical guidance],” ILB president director Henry Chandra said.

The bonded logistics center in Bangka, Pangkal Pinang, has a storage capacity of 6,000 metric tons of tin ingots. “With the estimated export volume of tin reaching 70,000 metric tons per year, the capacity is enough,” he said.

ICDX said that with the warehouse, the volume of tin transactions in Indonesia would increase as the goods would be produced and stocked within the country.

Furthermore, commodities stored in the bonded warehouse are free from domestic risks and can be used as collateral or financing through participating banks.

Attending the ITCE event, Energy and Mineral Resources Minister Ignasius Jonan said he hoped that the existence of ICDX establishes a fair price of tin, a major commodity in Indonesia.

“We do not try to manage the price, because it is a world market price. But we expect tin to have a fair price,” he said. On Monday, the ICDX tin settlement price stayed at US$20,550 per metric tons, according to its website.

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