Each quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the precious and base metals – The Sucden Financial Metals Reports, April 2016.
Below is the tin report, to download a PDF copy of the full report covering all the metals in pdf form click here.
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Tin – Waiting for a supply response from China
Tin appears to have put in a base just above $13,000 per tonne, having spiked down to $13,600 a year ago. There have been four subsequent downward spikes but all have found support, the latest in January at $13,145. The rebound since then, which has been driven by Indonesian export restrictions and production cuts in China, has been aggressive – prices rallied 33.3 percent off the lows compared with an average across the LME base metals complex of 23 percent. As the chart shows, given the extent of the fall since 2014, the rebound may have only just started.
Overall trend – Tin prices, after hammering out a base in 2015 and early in January this year, have rallied strongly. The final trigger was news that several China smelters would cut output. This coincided with continuing low levels of exports from Indonesia and a drawdown in LME stocks to levels not seen since November 2008. Deleveraging in commodities accelerated last year and a nervous start to 2016 – prompted by a sharp sell-off in Chinese equities – led to an oversold market. The speed of the rebound now suggests the market is unwinding that oversold condition. Because tin can become a thin market, volatility can develop quickly. The rally has been strong but it will be vulnerable to an equally sharp correction should some bearish developments unfold. Still, while Indonesian exports remain restricted and LME stocks are low, the swing supplier will be China. Chinese tin prices dropped below the LME price late in March so we would expect increased exports of tin products to dampen the rally in LME prices.
Chinese smelters agree co-ordinated production cuts – Nine Chinese tin producers have agreed to cut 17,000 tonnes of output across 2016. At face value, that is a significant volume of tin but, with prices rising significantly since that decision, it seems highly improbable that the smelters will keep their promises. This is especially so given that the country has been importing record volumes of tin ores and concentrates from Myanmar. Official customs figures showed ore imports of 72,436 tonnes (gross weight) from Myanmar were 239 percent higher in January than in January 2015. Some of this would be due to new production but the run-up in prices would also have led to the release of stockpiled material. Imports from Myanmar were 8,000-9,000 tonnes of metal contained in January, the International Tin Research Institute (ITRI) estimates. In 2015, the 285,592 tonnes of tin ore imports probably contained around 34,000 tonnes of tin. With imports up and refined production down, China will be sitting on significant stockpiles of tin-containing raw materials that will enable it to raise refined output smartly. Given the 47-percent rise in Shanghai Futures Exchange tin prices, it seems highly probable that tin smelters are restarting idle capacity.
Indonesia exports remain restricted – Indonesia’s tin exports in the first three months of the year totalled 9,710 tonnes, down from 19,686 tonnes in the same period in 2015. Last year, exports totalled 70,154 tonnes. In 2015, excluding August, when there were no exports, monthly exports averaged 6,383 tonnes. Exports so far in 2016 are therefore running some 49 percent below last year’s rate. Indonesia has in recent years been the world’s largest exporter so the fall in exports has understandably tightened the global market. Indonesian producers expect exports of 50,000-60,000 tonnes in 2016; the poor start to the year because of adverse weather and export restrictions – exporters had to wait for new quotas – has underpinned the bullish price action. Exports are likely to recover somewhat in the months ahead; ICDX trading volumes of 3,475 tonnes in the first seven trading days of April suggest they will, which could pour cold water on the bull market.
Output from top 10 producers falls 7.4 percent in 2015 – Output increased at only two of the 10 leading producers last year; output was little changed across two of the producers and fell across the other six. Total production at these smelters was 225,601 tonnes, down from 243,654 tonnes last year. Given the broad-based reduction in output, $13,000 seems to be a realistic floor price.
LME stocks fall to 1.2 percent of annual consumption – LME stocks, at their recent low of 3,655 tonnes, would only cover 1.2 percent of annual global consumption. Stocks in SHFE-registered warehouses have never been high – they peaked at around 1,800 tonnes but were last at 778 tonnes. Since we expect the producer response to be seen first in China, we would keep a close eye on SHFE tin stocks.
Outlook – For now we have raised our 2016 forecast to $16,000 per tonne and see prices averaging $15,410 in the first quarter. We expect a second-quarter range of between $15,400 and $17,000.
The trend in LME tin stocks is to the downside. Spreads tightened and stocks edged higher when they got low but not by much. C-3s shifted into a back on January 19; 2,300 tonnes have since been delivered in. Given how low stocks are, we are surprised cancelled warrants are not higher.
Low stocks prompted a price rebound in mid-January; prices have levelled off as stocks have climbed. We expect the inverse relationship between stocks and prices to manifest itself while stocks are below 6,000 tonnes.
Global semiconductor sales have fallen on a regular basis since October and were down 6.2 percent in February compared with a year earlier. This does not bode well for tin demand but supply seems to be the main driver for now.
Indonesian tin prices are oscillating either side of LME prices. With trading volumes on the ICDX rising in April, we should watch to see if ICDX prices start to trade at a discount to LME prices. There is no sign of this yet.
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