As world shapes tin market, Malaysia seek to raise output

From the plating of food cans to the soldering of electrical connections, tin is a fairly unnoticed ingredient of modern life. It is used in agriculture, paints, plastics, and wood preservation. When it is noticed, its origin is usually taken for granted.

This attitude had been keenly felt by the world's tin producers, most notably Malaysia, Indonesia, and Thailand, which mine some 65 percent of the world's supply. After enjoying the fruits of several years of price increases, these nations have seen prices fall sharply, a result of recession and huge stockpiles that consuming countries have used to partly control prices.

The producing countries hope a negotiating session to reach a new International Tin Agreement, going on now in Geneva, and next month's Tin Council meeting will result in some agreement on prices and stockpiles. Unlike oil price conferences, importing countries do participate in these meetings. As the world's largest tin user, the United States is an influential participant.

Of all the producing nations involved in these talks, the one that is perhaps most closely associated with tin is Malaysia. And for years tin has been a means of livelihood for thousands of Chinese who migrated to the lush green tropical peninsula of Malaysia.

The tin production began simply enough with small-scale operations that scoured river banks and bottoms by hand. Then came the large-scale dredges and water pumps -- all designed to scoop up and separate tin from soil.

But today tin is no longer the dominating export industry it once was, Datuk Paul Leong, the Malaysian minister of primary industries, explains. Last year tin earned only 11 percent of the country's export earnings.

That was a far cry from the early 1960s, when tin and rubber dominated the Malaysian economy by earning some 70 percent of export earnings. In the late ' 60s the country diversified exports, boosting oil, gas, palm oil, and hardwoods.

Today tin and rubber provide only 30 percent of Malaysia's export revenues, with tin making 11 percent and rubber 19 percent.

Today it is oil that holds the commanding lead, with 23 percent of the country's export earnings.

To some extent this is misleading, Mr. Datuk Leong says. The reason is that oil and natural gas prices are rising, whereas tin prices are in a somewhat depressed state. This makes the amount of oil and gas exported seem like more.

Malaysia's tin industry faces a two- pronged challenge. One is the depressed state of international demand. The other is the increasing difficulty and expense of locating new tin deposits.

Behind the depressed price, according to Datuk Leong, is the generally depressed state of the world economy. This had led to a surplus of tin, for Malaysia some 6,000 tons this year. Because of this surplus, he says, tin consumers feel confident to run on low tin inventories, and this decreases their purchases. Also, the US has began to sell some of its tin reserves on the open market. While the amount is small so far (some 100 tons), the expectation that more will be sold helps keep prices down.

The other side of the problem is diminishing supply and production.

Malaysia mined only 62,000 tons in 1980, compared with 76,000 in 1975, Datuk Leong says.

"There is a constant demand, but still little successful exploration," he explains.

He says part of the problem is difficulty in attracting foreign investment. This, he says, is not a factor in the smaller-scale alluvium mining, managed and financed by local people. But in risky large-scale lode mining there is a need for foreign capital to finance exploration, he explains.

The problem is that under Malaysian law foreigners are restricted to owning no more than 30 percent of ventures. This is part of the government's "bumiputra" (sons of the soil) policy of increasing the share of the economy owned by the largely agricultural Malays, 53 percent of the population (Chinese are some 35 percent).

In Malaysia tin mining has been largely a Chinese or foreign-operated business.But the government legislation is to limit economic ownership to 40 percent Chinese and 30 percent foreigner, with 30 percent for Malays (bumiputras) by 1980. Restrictions on foreign ownership have already begun.

Thus foreigners have been deterred from providing the needed capital for expensive exploration.

Mr. Datuk Leong identifies two possible solutions for this problem.

One is to negotiate with foreign companies plans whereby they would be able to fully own enterprises at first, with buy-out by the government coming only gradually. Although foreigners would eventually lose controlling shares, their stake would be large enough for enough time to make the venture profitable.

The other approach is for the government itself to take a greater part in the exploration, later letting private companies take over.