Each quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the precious and base metals – The Sucden Financial Metals Reports, Jan 2016.
Below is the tin report, to download a PDF copy of the full report covering all the metals in pdf form click here.
Subscribers have access to these reports before they are published through the research tab in FastMarkets Professional.
Tin – Price weakens out of sync with supply deficit
Tin prices have become range-bound between $13,365 and $16,600 per tonne – in other words, either side of $15,000. The second half of 2015 saw Indonesia introduce numerous rules that affected exports of tin; the market is still adjusting to the fluctuations in exports that these have caused. And despite China having sourced ample tin ores from Myanmar, its refined tin production and exports have dropped in recent months. This suggests local producers have cut output and that margins are not good enough to encourage exports. Still, we expect China to remain a swing supplier. After a slow start prices are likely to be supported at around $13,000 with possible increases later in the quarter. Strong resistance is expected at $15,600.
Overall trend – Tin prices have been stuck in a sideways range in the second half of 2015, but prices are once again testing support in early 2016. Refined supply is being kept in check via lower exports from Indonesia and Chinese production falling 3.0 percent in the first 10 months of 2015. The International Tin Research Institute (ITRI) expects global refined tin production to have fallen around 6.0 percent in 2015 and demand for tin to have fallen 3.0 percent due to slow global growth. These trends are expected to continue in 2016 although output from Indonesia may well fall further because some producers are likely to fall short of the requirements for exporting metal. If they cannot export, a lack of cashflow should lead to production cuts. So the supply side for 2016 is likely to tighten further but whether the demand side rebounds will largely depend on whether China’s solder market recovers and on world growth generally.
Indonesian exports expected to fall – Indonesia has made numerous attempts to shore up the tin price in recent years; 2015 was no different. Its latest regulatory measures disrupted exports when introduced but exports have tended to recover in the months following rule revisions. The latest measures, however, may lead to structural changes – if companies cannot meet the ‘clean and clear’ requirements, they will not be able to export, which is likely to lead to closures. It is believed that many smaller producers will fail to get ‘clean and clear’ certification because they have been mining in illegal areas. In turn, this should lead a drop in Indonesian output. Indonesian producers expect the net impact will be a drop in exports to 60,000-65,000 tonnes in 2015 and 50,000-60,000 tonnes in 2016, while ITRI expects exports to drop to 65,000 tonnes in 2016 after 69,500 tonnes in 2015.
China – Lower tin prices have hit Chinese domestic tin production – Yunnan Tin closed some of its higher-cost mines while many other mines either lowered output or cut it due to low prices and/or pollution issues. In the first 10 months of 2015, refined tin production dropped 3.0 percent to 137,214 tonnes but it was down 8.3 percent in October while concentrate output was up 13.5 percent in the first 10 months but down 8.0 percent in October. China’s tin ore and concentrate imports climbed around 62 percent in the first 11 months of the year, with some 40,000 tonnes of tin content imported. So it looks as if Chinese producers are concentrate-rich – they should therefore be able to act quickly when prices warrant a supply response. This is likely to act as a cap on the market.
Demand weak but not as weak as supply – Tin demand is likely to remain flat in 2016 but the risk to this forecast is to the upside – apparent demand could pick up if the market feels the need to restock. Given low prices, low stocks and the likelihood of a supply deficit, restocking seems probable at some stage. Indeed, with prices as low as they are, there is little incentive to invest in tin infrastructure, which is likely to mean a more bullish longer-term outlook for tin prices because it will take higher prices to incentivise new production, all of which will take time to be commissioned. But China is likely to be able to respond to higher prices in the short term – the numbers suggest it has built up concentrate and ore stockpiles.
No shortage reported in the physical market – The physical market remains well supplied but the rise in LME stocks in November and December may well reflect physical merchants selling metal to reduce stock ahead of the end of the year. It will therefore be interesting to see whether stocks start to flow out again as 2016 unfolds. Given expectations for a supply deficit, we would expect stocks to be drawn down. For 2016 we expect prices to average $15,750 per tonne and expect a first quarter range between $13,000 and $15,600.
The rise in stocks since October last year has kept tin prices in the low ground. Despite the stock rebound, stocks remain low by historic standards so prices remain oversold basis LME stocks. The large fourth-quarter backwardation no doubt helped attract stocks into LME-listed warehouses.
Low tin prices and a forward backwardation mean even lower forward prices. 15-month prices are $117 below cash prices. This suggests consumers and funds are not yet convinced these are bargain-basement prices – we think they probably are.
Global semiconductor sales stopped sliding in May, were flat until August and picked up again in September. But on a year-on-year basis sales fell for three consecutive months to September. Sales dropped 2.8 percent in the third quarter from the same period in 2014. Demand for solder is also falling due to miniaturisation.
Indonesian tin prices followed LME prices lower until October last year when LME prices continued lower while ICDX prices levelled off; they have since got some lift. This suggests that Indonesian exports will fall even further, which in turn is likely to underpin LME prices.