Top China tin firm halts output despite aid plan

China's top tin producer, Yunnan Tin, has stopped production at its smelting facility due to low prices, despite a plan by the Yunnan provincial government to support smelters by buying metals.

"Prices have been below our production costs," a director at Yunnan Tin's trade department told Reuters on Tuesday. "We also do not have enough concentrates and we only have one furnace. We have to close it completely, which we did on Dec. 8."

He said the company's sole smelting facility in Yunnan province had the ability to produce 70,000 tonnes of tin a year and this year's output would be around 60,000 tonnes.

News of the shutdown moved tin prices up briefly but the price retreated later as worries over demand resurged.

Tin for delivery in three months MSN3 on the London Metal Exchange (LME) ticked up to $11,850 a tonne versus $11,500 before the news. It was bid at $11,600 a tonne at 1225 GMT.

The director at Yunnan Tin said the firm might reopen the smelting facility after February if it sold some tin to the provincial government's stock-building plan, which was aimed at convincing smelters not to cut production and to keep jobs.

Yunnan province's plan to build a reserve of 1 million tonnes of base metals will be financed by bank loans secured on smelters' metals stocks, a document posted on the province's website showed ( www.yn.gov.cn ).

The plan, announced last week, targets volumes of 150,000 tonnes for copper, 300,000 for aluminium, 150,000 tonnes for lead, 300,000 tonnes for zinc and 100,000 tonnes of tin.

An official at Yunnan's Economic Committee said last week that the metal would include tin ores, ingots and semi-finished products.

However, a director at the economic operation division of Yunnan's Economic Committee handling the plan told Reuters on Tuesday the buying plan had been finalised and it would be for primary metal.

The provincial government expects local metal smelters to get loans from banks to fund the purchases, and it would subsidise the interest paid by smelters. The stocking of reserves will be done between December 2008 and the end of 2009.

"The plan has a quota for metals but that will not necessarily be filled," the director at Yunnan Tin said, adding that the overall volume depended on the take-up by smelters.

He said his company had not decided how much tin it would sell to the plan next year as it needed metal for term clients.

The metal sold under the plan would be stored in smelters' yards or warehouses in Yunnan, and be managed by the plan's controller, he added. Smelters should be allowed to get back the metal after paying back the loans, which could be extended.

A spokeswoman for another firm in the province, Yunnan Chihong Zinc, said the regional plan would help cash-hungry metal smelters in Yunnan, including Chihong.

"If the government used its money, that should be much better as smelters are required to pay back the loans later."

Analysts said they were puzzled at how the provincial government set the loan targets for local banks.

An official on Yunnan's Economic Committee said on Tuesday that loans to smelters would be an investment by banks.

Analysts said they think the plan may not help smelters very much, due to the surplus in base metal markets.

"This won't make any difference to the problem of oversupply in commodity markets. The metal will sit there in smelters' yards, it won't go into consumption and it won't deter production," a commodities analyst said, requesting anonymity.

information from www.reuters.com