Short term: The LME three-month tin price has rebounded notably from its 2018 low. The positive trading momentum has enabled tin to break above the 20 DMA this morning. We expect further upward pressure in the immediate term toward the 200 DMA if tin manages to daily close above the 20 DMA.
Long term: In the monthly chart, the bullish crossover pattern, where the 20 MMA is above the 50 MMA, is being tested although it is still intact. A monthly close below the 50 MMA would destroy the bullish configuration and result in significant downward pressure.
Macro and micro drivers
The tin price has risen nearly 1% since the start of the week after a rally of 3% last week. The solid rebound has reinforced our view that the sharp sell-off in the second half of November was technical (i.e. forced selling) rather than fundamental and therefore a buying opportunity.
The rebound is underpinned by increased tightness in the LME tin market, fluctuations in nearby spreads suggest. The backwardation in the cash/three month spread has deepened to $38 per tonne on average so far this week from an average of $20 per tonne last week, pointing to stronger appetite for immediate consumption.
China's refined output is set to contract this quarter because of an growing decline in tin concentrate shipments from Myanamar, China's primary source of raw material. The ITA therefore expects China's refined tin production to tumble by 29% year on year in the final quarter.
We expect a smaller contraction of 4% in China's refined tin production due to still sufficient concentrate shipments from Myanmar; the tightness should be felt from 2019 instead. The rise in SHFE stocks (see below) corroborates our view.
The complete halt of tin trades on the ICDX since November 14 may have material implications for global supply because it removes 5,000-6,000 tonnes per month from the market, which is around 15-20% of monthly global consumption. There is plenty of uncertainty about how long the stoppage will last. The full tightness should be felt from 2019.
In spec positioning, investment funds boosted their net spec length in LME tin last week, the latest LME COTR shows. But they have de-risked over the past four weeks and since February this year. We expect specs to return on the long side due to tighter fundamentals for 2019.
Flows in visible inventories
Exchange inventories are up around 2,200 tonnes on the quarter:
The WBMS estimates that the global refined tin market was in a deficit of 1,600 tonnes in September - a fourth consecutive monthly deficit. The cumulative deficit for January-September 2018 was 9,700 tonnes after a deficit of 14,000 tonnes in the corresponding period of last year.
In the first nine months of 2018, global mine production expanded by 18% (predominantly due to a 62% increase in China), refined production contracted by less than 1% (China: -7%, Indonesia: +12%) and apparent usage contracted by 2% (China: -10%), all on a yearly basis.
In line with WBMS’ forecasts, Fastmarkets MB expects the overall global refined tin market to record a deficit of 7,000 tonnes for the whole of 2018, reflecting an increase of 2.6% in refined production and an increase of 1.5% in consumption.
We believe the rebound in tin prices will continue into the end of the year because of tighter supply dynamics from Asia. We think supply tightness from Indonesia and China will have a more visible impact on tin prices from next year. A catalyst could be the start of a decline in exchange inventories after their significant rise this year.
Trading positioning: We do not have a hypothetical trading position for tin.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.