Tin forecast and analysis for Q3 2016

Each quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the precious and base metals – the latest are Sucden Financial Metals Reports for July 2016.

Below is the tin report. To download a PDF copy of the full report, please click here.

Subscribers have exclusive access to these reports before they are published through the research tab in FastMarkets Professional.

Tin – Prices break through $17,500 cap

Summary

After putting in a base above $13,000 per tonne, tin prices rallied strongly to $17,525 in the first quarter before consolidating in the second quarter. They broke higher in July to reach $18,125. Supply from Indonesia has fallen this year and is unlikely to rise while China’s imports from Myanmar are running at a high rate. But refined output does not seem to be rising, suggesting these prices are not attractive enough for producers. Demand is subdued, which means the bullishness in the market reflects supply considerations. Low stocks and the potential for restocking could prompt another up-leg in prices. On this basis we anticipate selling pressure at $19,500 with support at $16,500.

Tin price chart - LME 2006 2016 - FastMarkets Metals report Q3 2016 Tin table - global supply and demand 2012-2016 - FastMarkets Metals report Q3 2016

Overall trend – The recovery in tin prices this year seems to have been driven by two events: lower exports from Indonesia and a degree of restocking in China. What is perhaps odd is that the increase in price to $17,000 per tonne from around $13,500 in the second half of 2015 has not prompted more of a supply response from China, especially given that the country has imported significantly more tin ores and concentrates from Myanmar. This suggests the imports may be on long-term contracts while tin prices are not high enough to justify raising production. Given that there is also a 10-percent export tax on tin and LME and SHFE prices have not been out of line much in recent months, there has been little incentive to export, suggesting that tin supply and demand are likely to remain well balanced. Still, China’s General Office of the State Council is apparently considering a proposal to allow tin producers to export the same amount of refined tin free of tax as the volume of tin ore and concentrate that they import. If implemented, this could change the dynamics of the tin market and would be likely to put downward pressure on prices.

Indonesian exports down 29 percent in Jan-May – Refined tin exports in the first five months of the year were 21,999 tonnes, some 29 percent below the total of 31,041 tonnes for the same period in 2015. Exports in January and March were both below 3,000 tonnes while the April figure was closer to 7,000 tonnes. While this would have skewed the data, exports this year would be around 65,000 tonnes using the ‘more typical’ May total of 5,378 tonnes. The forecast for this year would then sit at the upper range of forecasts made by PT Timah and the Indonesian Tin Exporter Association, which expect exports of 60,000-66,000 tonnes. Exports in 2013, 2014 and 2015 were 91,600 tonnes, 80,000 tonnes and 70,000 tonnes respectively so the supply reduction from Indonesia in recent years has been meaningful and has enabled the market to rebalance and to run stocks down. LME stocks at around 6,000 tonnes are down from a high of 12,165 tonnes last year and 15,440 tonnes in 2013. SHFE stocks were last around 3,000 tonnes, down from a peak of 4,488 tonnes in mid-May.

Chinese imports remain high – China imported 40,575 tonnes of tin ores and concentrates (gross weight) in May, which ITRI estimates contained some 4,800 tonnes of contained tin. This was down 13 percent from April’s imports but up 87 percent on May 2015. In the first five months of the year, imports from Myanmar totalled 215,184 tonnes, with estimated tin content of around 26,000 tonnes. In the first five months, exports from China, both official and non-official, are believed to be around 3,000 tonnes. With the rainy season now in play in Myanmar, which lasts until October, China’s imports are expected to fall.

Demand a mixed picture – Demand climbed 4.3 percent in January-April, according to the World Bureau of Metal Statistics, with the bulk of the increase from China where demand reportedly rose 12 percent. With SHFE stocks falling and after a period of falling prices that is likely to have prompted destocking, a period of restocking would not be surprising, especially given the turnaround in prices. More to the point, increased steel production is also likely to have boosted production of tinplate. But not all data indicators show a pick-up in demand…

Global semiconductor sales continue to fall – Semiconductor sales are a good barometer for the electronics industry and for solder demand. In the first four months of the year, semiconductor sales fell 6.1 percent to $104.8 billion from the same period in 2015 (see chart below). Sales of $25.8 billion in April were down 13 percent from the peak of $29.7 billion from November 2014.

Summary – For now we have raised our 2016 forecast to $16,900 per tonne, from $16,000 and, with prices averaging around $16,210 in the first half, we expect a third-quarter range of between $16,500 and $19,500.

tin chart - LME stocks vs cancelled warrants - FastMarkets Metals report Q3 2016

The rebound in LME stocks seems to have run its course; much of the increase seems to reflect the liquidation of the stock that Indonesia’s Refined Bangka Tin held when it closed down. Cancelled warrants have edged higher; we wait to see if this leads to a downward trend in stocks.

tin chart - stocks vs cancelled warrants - FastMarkets Metals report Q3 2016

The rebound in LME stocks capped the upward trend on the LME but it has not led to a price correction. Having moved sideways for most the second quarter, prices are now trying to push higher again. Any further fall in stocks would be bullish.

tin chart - global semiconductor sales - FastMarkets Metals report Q3 2016

Global semiconductor sales have fallen on a regular basis since last peaking in October. The month-on-month decline has slowed in recent months, suggesting some stabilisation.  After an 18-month downturn, the electronics industry may be ready to recover.

tin chart - tin price LME and ICDX - FastMarkets Metals report Q3 2016

LME prices were at a discount to ICDX during the fourth-quarter sell-off last year, which would not be conducive for exports. The recent dip in the LME price has again seen the LME trade at a discount to ICDX, which may lead to a pick-up in LME prices again before long.