TIN TRADERS' RESPONSE MUTED TO KL FUTURES MARKET European free market tin traders made a somewhat muted response to plans for a Kuala Lumpur dollar-based tin futures market due to be launched in October. Traders said the new market would probably be a useful trading medium for Japan and other South East Asian tin interests although European traders generally appear to be reasonably satisfied with the current "free market" system which has been operating since London Metal Exchange, LME, tin trading ceased in October 1985. Dealers here will also want to see how acceptable foreign metal will be on the new market and what sort of demand develops for forward deliveries. There is also a view among European traders that, while the proposed Kuala Lumpur tin futures market would provide another useful reference point, a market inaugurated by the Malaysian government -- in the past viewed as a major player at times by the trade -- would make participants uncomfortable. Some traders expressed a preference for a resumption of trading on the London Metal Exchange, but they added that while there has been some behind the scenes discussion on the subject a definite move is unlikely until outstanding High Court litigation actions have been resolved. Spot tin prices on the European free market are currently around 4,200 stg per tonne for high grade metal in warehouse Rotterdam. Over the past 18 months the price moved to a ten year low of 3,400 stg in March 1986 and rebounded to as high as 4,680 stg in December 1986. This compares with 8,140 stg last paid when LME trading ceased in October 1985 and a record high tin price of 10,350 stg traded for Cash Standard Grade metal in June of that year. LME warehouse stocks are now near a two-year low at 28,065 tonnes, having fallen steadily from a record high of 72,485 tonnes reached in February 1986. Traders said the free market turned bullish during late last year based on producer forecasts of a supply/demand deficit of some 28,000/29,000 tonnes. Analysts were predicting prices of up to 5,000 stg per tonne during 1987. However, the trend was reversed following a strong upswing in sterling versus the dollar and values fell back briefly to 4,100 stg last month after approaching 4,700 stg in December. The decline accelerated as producers who had sold very little metal at the higher levels became competitive sellers. There was also a lack of significant demand from major steel mills who made large purchases prior to the new year. Traders say the 15 ITC creditor banks' original tin holdings of nearly 45,000 tonnes have now been almost halved, and the bulk of material still available is being held by Malaysian and Japanese firms which are reluctant to depress the market with unwanted metal. Some 80,000 tonnes were held by banks and brokers after the International Tin Council's, ITC, buffer stock manager halted support operations on the LME on behalf of the 22 members nations of the International Tin Agreement. The overhang of metal was reduced further by broker Shearson Lehman Brothers, which earlier this year reported having sold its ITC-related holdings and halved its overall tin position. Analysts see no immediate sign of a rally in European tin prices and movements are still expected to be largely related to currency fluctuations, unless significant consumer demand emerges for the third quarter. The Association of Tin Producing Countries, ATPC, has made efforts since the collapse of the ITA to achieve higher world prices by attempting to bring all major producers under an export control umbrella, but to date Brazil and China, two major producers, remain unaffected by the ATPC argument and apparently are continuing to offer material at discounts to consumers in main European trading centres, dealers said.