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EXCLUSIVE-Major tin producer MSC won't resume pre-COVID output for 9 months -letter

* Malaysia Smelting Corp is world’s third largest tin producer

* There is a backlog of tin ore to be smelted -MSC

LONDON, April 30 (Reuters) - Malaysia Smelting Corp (MSC), the world’s third largest tin producer, has told clients its smelting operation is being severely affected by the COVID-19 pandemic and it will take nine months to resume normal output, a letter seen by Reuters showed.

MSC said in the letter, dated April 26, that it had to restrict intake and make changes to contracts - a move that will further exacerbate shortages of tin used in solder for electronic products and chemicals.

Shortages started to emerge early this year as accelerating industrial activity boosted demand for tin and supplies remained under pressure from COVID restrictions.

“We are no longer able to handle our usual volume of feed materials until we have re-established pre-pandemic smelting capacity,” the letter stated.

Benchmark tin prices on Friday hit $29,225, a ten year high, a gain of more than 40% so far this year.

MSC accounts for about 7% of global supplies estimated at around 330,000 tonnes last year. It produced 22,400 tonnes last year, International Tin Association figures showed.

The company’s website states it has capacity to produce up to 60,000 tonnes of tin a year.

MSC’s operations over the past year have been impaired partly by restrictions on staffing numbers due to the coronavirus and partly because of technical problems at its new smelter, two sources with direct knowledge said.

“The pandemic led to disruptions in our smelting operations and as a result, there (is a) backlog of tin ore to be smelted,” MSC Group Chief Executive Patrick Yong told Reuters in response to requests for comment.

“In addition, our aging reverbatory furnaces at the Butterworth smelter have been in operations since 1902 and are experiencing some downtime due to natural wear and tear.

Yong said MSC expects “to achieve full capacity at the new Pulau Indah smelting plant by end 2021,” and that the company does not reveal production figures.

MSC processes its own mined tin raw materials and concentrate for other companies sourcing material from countries such as Nigeria and Democratic Republic of Congo.

The letter said customers that buy tin will now have to pay a price determined by MSC, based on its “capacity and ability to process the material,” as opposed to the pricing terms in the smelting contract.

Another change for clients is an extension of the time taken to process raw material into metal for other firms, known as tolling, to 60 days from 30 days previously.

“MSC is sitting on hundreds of tonnes of concentrate accumulated over the last year, concentrate it hasn’t been able to process,” a source with direct knowledge of the matter said.

“Nobody has been getting much metal from (MSC). It’s one of many reasons why there are shortages in the tin market.”

The scramble for tin can be seen in historically low stocks MSNSTX-TOTAL in London Metal Exchange registered warehouses and the premium for the LME cash over the three-month tin contract, currently around $2,400 a tonne.

The premium climbed above $5,000 in the middle of February. (Reporting by Pratima Desai; additional reporting by A. Ananthalakshmi in Kuala Lumpur; editing by Veronica Brown and Elaine Hardcastle)

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