Forecast:

     Very short-term (1M):
Flat
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Up

 

Resistances:
R1 17,480 - 20 DMA
R2 20,000 -  Key level
Support:
S1 16,235 - 2019 low
S2 17,000 - Support

Legend:
LME - London Metal Exchange
SHFE - Shanghai Futures Exchange
D/MMA – daily/monthly moving average
U/DTL –  up/downtrend line
ADX – average directional index
RSI – relative strength index
WBMS - World Bureau of Metal Statistics
ITA - International Tin Association
ICDX – Indonesia Commodity & Derivatives Exchange
SIA - Semiconductor Industry Association
WSTS - World Semiconductor Trade Statistics


Technical drivers
  • The LME three-month tin price is marginally above its 2019 low established on Wednesday August 7.
  • The daily momentum indicator is well below 0 and the ADX is sharply above 21, suggesting a strong and sustained downtrend.
  • The short-term daily moving averages are steeply downward-oriented, which is exerting strong downward pressure on prices.
  • On the bright side, technical conditions look oversold (based on the RSI) on the daily and the monthly charts.
  • On the downside, while $17,000 per tonne seems to have a proven a reliable support level, we believe that $16,444 per tonne - corresponding to the 200 MMA - should hold in a worst-case scenario, as it was the case during the 2015-2016 sell-off.
Macro drivers
LME tin is under pressure this morning - it is down by 0.2% so far - after closing up by 0.5% yesterday. It is down by about 2% on the week after falling by 3% last week. The price momentum is therefore extremely negative.

Tin and zinc are the only metals that are down on a week-to-date basis, suggesting negative fundamental drivers.

Given heightened technology tensions between Japan and South Korea (in addition to heated trade tensions between the United States and China), tin prices have come under marked downward pressure in the past month.

Fundamental indicators - as represented by exchange inventory flows - have improved notably since the start of the third quarter. LME and Shanghai Futures Exchange tin inventories are down by a combined 3,600 tonnes or 24% in the quarter to date, with outflows from listed warehouses in the LME and SHFE systems. Last week, global exchange inventories were down by around another 1,000 tonnes or 10%, pointing to tighter conditions in the refined tin market.

Longer-dated LME nearby spreads are also tighter on the quarter, which could signal tighter refined market conditions. The three-month/15-month spread is in a backwardation of $365 per tonne.

Solder demand for tin disappointed in the first half of 2019. According to the SIA, semiconductor sales (a proxy for solder demand) contracted by 9.8% year on year in the first six months of the year. In June, sales totaled $32.7 billion, down by 16% sequentially and 16.8% from a year ago.

What will determine the extent (in terms of duration and strength) of the sell-off in tin prices will be how tighter the refined output profile becomes. While it was expected to become already tighter in the second half of 2019 due to tight concentrate availability from Myanmar, it could become even tighter due to the sell-off in prices. We will watch SHFE stock flows to better assess the supply response.

Supply/demand
The World Bureau of Metal Statistics (WBMS) estimates that the refined tin market was in a deficit of 4,000 tonnes in January-May 2019 compared with a deficit of 1,100 tonnes in the same period of last year, which suggests that refined market conditions have tightened from a year ago.

The refined tin market was in a small surplus of 700 tonnes in May, however - the first monthly surplus in three months.

Fastmarkets' analysts expect a deficit of 11,000 tonnes this year, including increased tightness in the second half of the year.

Conclusion
Given the extremely negative price momentum, it remains uncertain that $17,000 per tonne will hold. Although selling pressure could extend a little from here because physical demand remains muted (evident in softer premiums), we think that the August low will be the low of the year, with a strong rebound to come from September until the end of the 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.