ITRI LME week view on the tin market Release date: 12 Oct 2010...

ITRI LME week view on the tin market



Release date: 12 Oct 2010



In LME Week two years ago just a few weeks after the Lehman collapse - the talk was all about how far tin and other metals prices could fall. This year the market has been heading strongly upwards and the question is how high prices can go. The driver of both the fall and the recovery has been tin consumption, which nose-dived from October/November 2008 and hit bottom around February/March last year. In that period global demand dropped by about 30% year-on-year, as a result of both lower sales of final tin-using products such as computers and cars and a huge inventory clear-out in the electronics industry supply chain.

However demand steadied and recovered in the second half of last year, helped by enormous (and unrepeatable) government monetary and fiscal stimulus packages and has bounced back strongly in 2010. ITRI estimates the world refined tin demand will rise by about 15% to some 345,000 tonnes this year although this is still short of the all-time peak of over 360,000 tonnes reached in 2006.

Price action depends both on how demand leads and supply follows. The reason that tin prices have been rising faster than those of the other metals is that there were quick supply cuts at the start of 2009, especially in China, but there has been hardly any growth in global production in 2010. Chinese production levels were restored in the first half, although output growth there (+19% y-o-y in H1) was slower than demand growth in the same period (+32% y-o-y).

Almost everywhere else in the world production has been either flat or declining. There are three big problems. First Indonesian production is falling. Latest reports are that PT Timah may miss its initial annual production target of 50,000 tonnes by 10,000 tonnes or more, while 18 private smelters (out of 31 with export licences) are believed to be shut down. Secondly there is a huge political problem around conflict minerals from Central Africa. Most mining activity in the eastern provinces of DR Congo which accounts for about 5% or world supply - has been halted since mid-September. Thirdly there are hardly any significant new tin mine projects on the horizon until 2012/2013. Assuming the world does not experience a double-dip recession and demand continues to grow, the tin supply chain will be stretched even further next year.

Prices have risen to a new record level of around $26,000/tonne this week, but there are several reasons for caution about expecting further rises in the immediate future. The rapid recovery in demand is now tapering off, and prospects will be adversely affected by uncertain global economic conditions and the threat of price-induced substitution. Mood shifts on economic and financial factors could easily again turn around recent price trends in all commodity markets. Finally China which held the tin and other markets together in 2009 is now lagging behind the bullish mood elsewhere in the world. Chinese tin prices have remained well below LME levels recently and the current differential will encourage producers there to start exporting again unless it is closed quickly.