ANALYSIS-Indonesia eases curbs on tin exports, not mining

* Indonesia relaxes rigid export rules after crackdown

* Low global tin prices also discourage exports

* Onshore reserves depleted but offshore mining faces hurdles

* New mining law causing delays in new exploration

JAKARTA, Aug 6 - Indonesia has handed out six new permits to export tin in the last three months, swelling the ranks of licensed smelters to near pre-crackdown heights in 2007, but the world's top exporter is unlikely to increase supply until it firms up new mining rules, which may take months or years.

Indonesia, which produces nearly 30 percent of the world's refined tin, introduced rigid rules for tin exports in 2007 after a crackdown on tin mining and smelting in late 2006 in the Bangka-Belitung islands, the country's main source of the metal.

Before the crackdown, smelters could export the metal freely and there were about 38 that were actively exporting, but dozens shut down after the crackdown and were not allowed to export until they got a licence.

The government has gradually released more permits since then, handing out six this year alone, boosting the total to 30.

But analysts say the key constraint -- apart from a still vague government-mandated cap on total production volume -- is not how much can be exported, but how much can be mined, as miners cannot get permits to explore new areas until new regulations attached to a 2008 mining and coal law are passed.

Officials have said this could be in October, but precedents suggest a longer wait: it took three years for the regulations attached to an earlier oil and gas law to be completed.

"The government keeps issuing export licences but on the other hand we can't explore for new tin reserves," said Ismiyardi, a commissioner at PT Bangka-Belitung Sejahtera, a consortium of seven small smelters.

The consortium was currently running at about 60-70 percent below its full capacity of about 2,800 tonnes a month due to a lack of raw materials, he said.

Indonesian mine production may fall to below 85,000 tonnes this year from a 2005 peak of nearly 140,000 tonnes, said Peter Kettle of U.K.-based tin consultant ITRI.

But Kettle said refined tin output would be roughly unchanged from last year, at about 90,000 tonnes, as smelters, such as market leader PT Timah Tbk , run down tin slag stocks.

"More export licences just mean that there are more companies competing for the same amount of raw material supplies," he said. "It means miners get good prices but smelters struggle to make money."

PRICES STILL AILING

Prices of tin -- widely used in food packaging and to solder electronic products -- have gained about 38 percent so far this year to $14,900 a tonne but are still about 40 percent below their record high of $25,500 a tonne hit in May 2008.

Low global tin prices have also kept producers cautious about ramping up production and piling more pressure on prices.

"Smelters will not export aggressively and cause tin prices to fall again. It will be unprofitable for them," said Norico Gaman, head of research at brokerage firm BNI Securities.

And centuries of lightly regulated Indonesian mining has depleted shallow onshore tin reserves and meant miners have to dig deeper to find ore, increasing costs and cutting margins.

"We have to dig more than 10 metres (33 ft) before we find tin ore. When tin prices fall, we lose money as it can't cover costs," said Besur, 34, a small-scale miner in Bangka island, who goes by one name like many Indonesians.

Even with the production restraints facing Indonesia, the price implications were limited since the global market was seeing a fall in tin consumption.

"The global market is over-supplied due to a likely 10-15 percent fall in consumption. It would take a sharp production cut from Indonesia, to less than 80,000 tonnes, to eliminate the likely surplus this year," Kettle said.

For FACTBOX on Indonesia's tin industry click [ID:nJAK439733]

OFFSHORE MINES

The bigger issue for markets may ultimately be how Jakarta fulfils its promise to limit production in order to shore up prices and limit environmental damage on the Bangka-Belitung islands off Sumatra, where most of the mines are.

An official production quota has not yet been set, although the government has cited a planned 2009 target of 105,000 tonnes.

Bambang Gatot Ariyono, director of coal and mineral production at the energy ministry, said a tin output target could not be enforced until regulations on the new mining law were in place and tin-producing regions had proposed output volumes.

With dwindling on-shore reserves and environmental pressures, there has been more investment to exploit offshore tin reserves.

"In the future, on-shore mining won't be the main source for production of refined tin," Gaman of BNI Securities said, adding that currently not many miners were able to mine offshore.

Most of the current off-shore investment come from PT Timah, which has been acquiring more dredges since last year, while small miners faced permit issues to start off-shore exploration.

Timah has planned to add seven suction-dredges and two bucket-wheel dredges to increase output from off-shore mining to 50 percent of its mine production from 65 percent last year, Abrun Abubakar, Timah's corporate secretary, said.

But Abubakar said that the use of more dredges would depend on how well the new ones performed and also tin prices, adding that Timah would maintain a 2009 output target of 45,000 tonnes. (Additional reporting by Yayat Supriatna, and Dwi Sadmoko in Pangkal Pinang)