LME WEEK 2019: Tin fundamentals and forecast

Tin has been the poorest performer among base metals on the London Metal Exchange in 2019 - down by 18% in the year to date - in sharp contrast with last year, when tin was the most resilient.

We attribute tin’s price weakness this year to negative factors on the demand side, most notably in the solder sector, which accounts for 50% of global tin consumption.

This has been the result of a slowdown in global economic growth, exacerbated by increased technology tensions – especially between Japan and South Korea, with the latter the largest and fastest-growing semiconductor manufacturing equipment market in the world.

Based on the latest data from the Semiconductor Industry Association, global semiconductor sales (used as a barometer for solder demand) contracted by 11% year on year in January-July 2019 after a 16% increase in 2018. World Semiconductor Trade Statistics forecasts a decline of 13% during the whole of 2019.

We believe that the weakness in tin demand from the solder sector pushed global refined tin into a surplus of 3,000 tonnes in the first half of 2019, while refined output growth was stable year on year.

We believe that a rebound in tin prices is likely in the fourth quarter of this year and in 2020. This will be driven by two factors: first, the recent supply response from China (responsible for 50% of global refined tin output) to the slump in prices; and second, a pick-up in tin consumption from the solder sector on a possible de-escalation of technology and trade tensions.

On the supply side, the collective refined production cut of 20,200 tonnes (about 6% of global output) by 14 Chinese smelters announced at the start of September could have a substantial effect on the balance of the refined market if those cuts are implemented strictly.

On the demand side, we feel that technology tensions are likely to deescalate – especially from next year – after China, Japan and South Korea hold their annual trilateral summit in December 2019. This will be an opportunity to ease tensions and could result in a boost in semiconductor sales, benefiting tin demand.

We see a meaningful deficit of 13,000 tonnes in the second half of 2019 and a deficit of 7,000 tonnes in 2020. The under-supplied nature of the global refined tin market should underpin an overall upward trajectory in tin prices.

We forecast a base case for the LME cash tin price of $19,500 per tonne in October-December 2019 and $22,000 per tonne for 2020.

LME tin cash price, $/t

2019 forecast average price  $19,368
2020 forecast average price