Overview of the Tin Market in Q2 2015
Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on thePrecious and Base Metals. Below is the Tin report, to read the full report covering all the metals in pdf form click here.
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Tin – China’s export scupper Indonesian efforts
Summary – Tin has surprised on the downside, showing that Indonesia’s attempts to shore up the market by various means have again failed, especially with prices falling through the lows from 2012 and 2011 around $17,000 per tonne to set a fresh low at $16,395. Given the fresh low, it appears that the combination of a weak demand environment and broad-based production increases have weakened the supply/demand balance. Weaker energy prices and a stronger dollar may well have lowered producers’ pain thresholds but we would expect prices below $17,000 to be unsustainable.
Overall trend – Tin prices had held in a broad sideways trend since 2011, oscillating wildly between $17,000 and $25,000, but the floor was broken in March when they dropped to $16,705 and then $16,395 in early April. What is clear is that there is more than enough supply, a hypothesis with which World Bureau of Metal Statistics data concurs, putting the market in a 7,300-tonne surplus in 2014. Although there seem to have been numerous small increases in production in many regions, the main game-changer has been the export of tin ores and concentrates from Myanmar. This enabled China to revert back to being a net tin exporter in 2014 for the first time in seven years.
China’s refined tin production climbed 22 percent in 2014 – Chinese imports of ore and concentrates from Myanmar climbed to 177,950 tonnes (gross weight) in 2014, which the International Tin Research Institute (ITRI) estimates contained 28,000 tonnes of tin, an increase of some 50 percent on the 2013 total. China’s tin metal production therefore climbed 22 percent to 186,900 tonnes; some of this metal found its way to the export market. Whereas only 937 tonnes of tin ingot were exported, ITRI estimates some 9,000 tonnes of tin in forms that avoided the 10-percent export levy left the country – this would account for most of the market surplus. Indeed, Chinese exports have scuppered Indonesia’s attempt to restrict supply and to maintain prices at high levels.
Indonesian exports fall – Despite the low price, which was meant to choke off Indonesian exports, exports have continued, with 6,700 tonnes leaving in January and 5,986 tonnes in February. The average for the first two months was 6,378 tonnes, close to the 6,670-tonne average for all of 2014. Total exports in 2014 at 80,044 tonnes was the lowest for eight years and down from 91,613 tonnes in 2013. The drop in Indonesia exports seems to have been countered by higher Chinese exports and a pick-up in production elsewhere. For example, the Democratic Republic of Congo reportedly mined 10,756 tonnes of cassiterite, containing 6,450 tonnes of tin, which was up 42 percent from 2013. There are plans for Indonesian producers to restrict exports to 4,500 tonnes per month; we wait to see if this underpins the market. Indonesia’s aim is to get prices back above $20,000. But since the producer talks focus on cutting exports rather than production, it seems as though any agreement may boost prices but only for as long as they can hold rank. This makes any lasting recovery unlikely until demand improves. Still, as the price oscillations have shown since 2011, a successful restriction on Indonesian supply can lead to sharp rallies.
Demand outlook – Demand for tin is expected to remain steady but slower growth in China and Europe, as well the continual process of miniaturisation in the electronics industry, could prove a headwind for solder demand because it means less solder per item. This is countering the overall growth in the electronics industry.
Semiconductor sales growth set to slow – Sales of semiconductors (a proxy for demand for electronics/solder) climbed 9.9 percent in 2014 from 2013, according to the World Semiconductor Trade Statistics (WSTS). Their forecast is for more moderate growth of 4.9 percent for 2015, which suggests steady demand rather than anything more exciting. The only point we would make is that these low tin prices could well lead to restocking if broad-based stimulus measures start to raise economic hopes.
LME stocks relatively low – could underpin price recovery – Judging by LME tin stocks, which stand around 10,000 tonnes, the market may be tighter than prices suggest – stocks have been falling since peaking at 12,190 tonnes in mid-December. When stocks were last below 10,000 tonnes, LME three-month prices were at $20,195; in February 2014, which was when LME stocks hit their previous low at 8,065 tonnes, three-month metal was at $23,300. The stronger dollar may well be dragging tin prices down because it enables non-dollar producers to increase marginal production but lower stocks may well become a cause for concern before too long. We expect prices to hold a $16,500 to $19,000 range in the second quarter.
The inverse relationship between the price and LME stocks has broken down. This seems unsustainable but is probably a reflection of how the run-up in the dollar has enabled producers to step up marginal production.
As LME prices sink, so has the forward price. But in recent months the cash-15 month spread has widened to around $100 contango from around $30 when prices were above $19,000, suggesting some forward interest.
Global semiconductor sales dipped in December and January although, as the chart shows, the start of the year is when they tend to dip. January sales were up 8.7 percent compared with January 2014 sales – so demand for tin looks steady overall.
The fact that ICDX prices followed LME prices lower below $20,000 is a sign that the latest Indonesian system to regulate prices is not working. Will restricting exports to 4,500 tonnes per month fare any better?