By Boris Mikanikrezai and Orla O'Sullivan

Tin hit an all-time high this year, and was the best performer across the base metals space with a year-to-date gain of nearly 80%. In a context of mixed macrodynamics, the remarkable appreciation of tin prices has primarily been due to extremely bullish supply/demand dynamics.

On the supply side, the Covid-19 pandemic has impacted key tin-producing countries like Indonesia and Malaysia, resulting in lockdowns and output curtailments. It has also disrupted concentrate supply, especially from Myanmar, the world’s largest producer, where Covid-19 restriction measures have undermined the flow of raw material to Chinese smelters. And in China itself, Yunnan province was impacted earlier this year by a heat wave and energy consumption restrictions, undermining smelting activity.

On the demand side, tin has benefited from firm demand from the electronics industry. According to the Semiconductor Industry Association (SIA), global semiconductor industry sales expanded by 23% year on year in the first seven months of the year, with robust demand across all major regional markets.

The supply/demand imbalance has been exacerbated by unprecedented supply chain disruptions, driven by port congestion in addition to shortages of shipping containers and workers. This has, in turn, prevented tin material from moving to areas where the refined market tightness was the most acute, such as the United States and Europe. Consequently, the physical market has become extremely tight, with premiums surging to all-time highs.

The very low level of visible inventories has also amplified the impact on tin prices by triggering noticeable short squeezes, evidenced by an abnormally high backwardation at the front end of the London Metal Exchange tin curve.

Going into 2022, we expect supply/demand dynamics to continue to support tin prices. Even though supply is expected to recover, demand growth is likely to remain strong, especially due to increasing consumption from green energy transition technologies. As a result, we believe that the refined market will remain in deficit, which should therefore warrant a further appreciation of tin prices. With the container market is set to remain tight through next year, we believe that physical premiums will remain historically high. We also expect the tin market to remain prone to short squeezes.

What buyers are saying
  • Premiums will be significantly higher. They are starting to request quotes on 2022 contract supply early this year out of fear of a bidding war or being stuck making spot buys approaching record premiums paid in 2021.
  • End demand for tin products is up, but suppliers cannot pass on higher premiums to their customers who are already balking at tin prices never seen before. The three-month tin price on the London Metal Exchange reached an all-time high of $36,830 per tonne on September 24. The three-month LME daily official tin price stood at $35,300 on September 30, up from $17,529 per tonne on October 1, 2020.
  • Before the renewed rise in tin prices, some buyers said the exceptional rally was at an end and that tin prices would crash. Producers were selling forward in anticipation, some said. Now, with prices and freight costs moving upward again, such talk has mostly died down.

What sellers are saying
  • Contract premiums will be significantly higher - if sellers are willing to enter annual contracts at all for 2022. Many were burned by committing to supply tin at far lower cost than spot supply. Spot premiums kept rising to new all-time highs during 2021, movements that only began to subside in August.
  • Highest among them were US spot premiums. Fastmarkets assessed the tin 99.85% ingot premium, in-whs Baltimore at $3,500-4,300 per tonne on August 10. But the premium started to ease with the August 24 assessment.
  • Contract premiums are likely to be several times higher than where they were in 2021. Buyers should expect to pay upward of 8% above the LME cash price - whatever the equivalent is in cents per lb or dollars per tonne, depending on how the contract is structured.
  • Contracts may be offered only for a single quarter at a time, or possibly six months, but probably not for the full year.
  • There is so much continued market uncertainty entering 2022 that sellers expect to be compensated more. Tight supply, uncertain price direction, backwardation, multiplied shipping costs and delays since the Covid-19 pandemic began, which increase already-high financing costs, must all be factored in.
London metals week remains a key milestone in the commodities calendar. Find out why it's still a big draw for the world's commodity trading community, and discover our special LME Week 2021 coverage on key commodities such as nickel, lead, tin and lithium.