Malaysia Smelting Corp, the world's second-biggest tin producer, tumbled to a two-year low in Kuala Lumpur trading after reporting a second-quarter loss because of a slump in the price of the metal.

The stock sank 6.9 per cent to RM3.50 as of 12:30 p.m. local time, poised for its lowest close since July 7, 2010. That's the second-biggest drop in the 252-member FTSE Bursa Malaysia EMAS Index, which gained 0.2 per cent. The company had a loss of RM46.2 million (US$14.9 million) in the three months ended June 30, compared with a profit of RM36.3 million a year earlier, it said in a statement yesterday.

The loss "caught us by surprise," Jerry Lee and Ng Sem Guan, analysts at OSK Investment Bank Bhd, wrote in a report today.

"Such massive losses were mainly attributed to the 38.5 million-ringgit tin inventory write down due to the plunge in tin prices." They downgraded the stock to neutral from buy, and cut the so-called fair value to RM3.62 from RM5.50.

Tin dropped 30 per cent from this year's high in February to Aug 6 as Europe's sovereign-debt crisis and a slowdown in China cut demand, meeting the common definition of a bear market. About 14 tin producers in Indonesia, the biggest exporter, halted production, the Indonesian Tin Mining Association said on Aug 7.

The drop in tin prices forced Malaysia Smelting to write down its tin slag inventory mainly for its Indonesian unit PT Koba Tin, which has an inventory book value that is significantly lower than the latest tin prices, according to the OSK report.

China's Yunnan Tin Co. was the world's largest tin producer last year with an output of 56,174 tons, according to data compiled by ITRI Ltd in February. Malaysia Smelting Corp ranked second while Indonesia's state-owned PT Timah the third. - Bloomberg