A catalogue of supply-side dramas has tightened the global tin market, leaving global inventories critically low + lifting the price.
Top price performer: Of the base metals, lesser-known tin has already delivered a solid price performance in 2016: +7.3% ytd to $15,651/t (in line with zinc; outstripping complex’s heavy-weights copper & aluminium) on robust market fundamentals. So what’s actually going on in Tin World – a metal used mainly as a solder (pipe joining/welding; electrical), making it a good gauge of industrial and property sector activity?
Mostly a supply story: A massive drawdown in LME inventories this year gives a hint about tin’s main price driver – down 26% ytd to just 4,500t (4.5 days’ supply) – itself a function of declining supply out of Indonesia and China (>60% global supply), in the face of stable demand growth. Indonesia’s exports fell 63% yoy Jan-16 (2,486t), mainly after a new export permit procedure was implemented mid-2015 (gives producers 6-month export quota). As producers filled their quota quickly, they had nothing left for January! While these exports should recover once the permits are renewed, there are supply constraints elsewhere: Indonesia’s main tin-producing province of Bangka Belitung was flooded late-Jan; environmental constraints have been imposed on offshore mining; a clampdown on illegal mining is being extended. Meanwhile, China’s tin producers announced coordinated supply cuts in Jan-16, totaling 17kt (12% of China’s 2015 production; 5% global output). Refined production may also decline in 2016 on reduced ore supply from Myanmar. Rapid growth of Myanmar’s tin industry (17kt, 2015; up from 2kt in 2012) undermined tin’s price mid-2015; but grades are peaking and current production rates are believed to be unsustainable.
Bullish price outlook: China’s producers are lobbying the government for the development of a tin stockpile as a way of providing industry relief for subdued domestic demand – in particular, in China’s construction sector. Nonetheless, falling mine supply and modest demand growth are expected to leave the global market in deficit in 2016, supporting the price. We forecast $16,755/t in 2016 (+4% yoy).
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Source: Morgan Stanley