(The author, a Reuters columnist, expresses his or her own thoughts.) LONDON, 7 JULY: The tiny tin market outperformed all other base metals in the first half of this year, despite copper grabbing the supercycle headlines.
Tin on the London Metal Exchange (LME) hit a decade high of US$33,181 per tonne in June and is now trading about US$31,800 per tonne, up 51% from the start of the year. Aluminium, the second-best year-to-date LME performer, is up 25%, while copper is up “just” 21%.
Because of limited inventory and chronic time-spread tightness, the LME cash tin price continues to attract a considerable US$1,000-per-tonne premium over the anchor three-month price.
According to Fastmarkets’ estimates, physical tin users are paying much more, up to US$2,000 a tonne in Europe and over US$3,000 in the United States, if they can find anyone with spare metal to sell.
Tin prices on the Shanghai Futures Exchange (ShFE) hit their highest level since the contract was created in 2015 this week, indicating that physical tightness is extending to the world’s largest producer.
Expectations for world production to recover from its pandemic issues in the second half of 2021 are gradually being revised.
Covid has a long history.
With fresh lockdowns in Indonesia and Malaysia, the world’s second and third largest producers, respectively, the tin supply chain is experiencing a metallic version of lengthy Covid.
After being forced to shut down its mine and smelting operations in early June, Malaysia Smelting Corp has declared force majeure. The company produced 22,400 tonnes of refined tin last year.
Due to furnace issues at its older smelter, the firm was already having trouble meeting client shipments. It warned in April that it wouldn’t be back to pre-pandemic output levels until the end of the year, a deadline that has now most likely been pushed back again.
Despite a clear price incentive, Indonesia, the world’s largest exporter of tin, has struggled to increase production. In the January-May quarter, exports fell 3% year on year to 26,900 tonnes, the weakest pace of shipment since 2016.
Lockdowns have been re-enforced in several sections of the country, indicating that there would be no immediate recovery.
China is now a net exporter.
Thanks to an export-friendly arbitrage window between the London and Shanghai markets, China has stepped in to fill the rest of the world’s supply gap.
In May, the country exported 3,045 tonnes of refined tin, the most in a single month since 2007. So far this year, net exports have totaled 4,200 tonnes, compared to net imports of 5,800 tonnes at the same time last year.
Exports of “other articles of tin” have also increased by 60 percent year on year to 1,800 tonnes.
Some refined exports have gone to Taiwan, Singapore, and Malaysia, which explains the recent increase in stockpiles held in LME warehouses in those countries.
However, to suit the needs of physical users, much has been scattered over the world. Shipments to Romania (80 tonnes), Turkey (59 tonnes), the Netherlands (50 tonnes), Italy (50 tonnes), and Poland (50 tonnes) made up the total for May. (20 tonnes).
However, China’s shift to net exporter appears to have tightened the domestic market, which is grappling with its own long-term production challenges.
Tin stocks on the ShFE have dropped 63 percent from a March high of 8,853 tonnes to 3,260 tonnes last Friday.
Premiums for adjacent contracts have tightened along the forward curve through November 2021, with ShFE time-spreads tightening.
Speculators in the area have seen what’s going on. The climb to life-of-contract highs has sparked a surge in market open interest.
According to the International Tin Association, Yunnan Tin is shutting down one of its two smelters for annual maintenance, which will result in a 45-day supply disruption (ITA).
Power rationing owing to drought in the hydro-rich area has already had an impact on the company’s operations, as have raw material supply constraints.
Much of the tin concentrates used by Yunnan’s tin smelters come from Myanmar, where output and shipments are being hampered by new coronavirus regulations.
China’s tin concentrate imports from Myanmar more than halved in May compared to April, with cumulative flows down 9% in the first five months of 2021 due to a labor shortage at mine and processing sites.
As firms are obliged to decrease their workforces by half to halt the spread of the coronavirus, a smaller alternative supply of raw materials from Rwanda is also at risk.
Metal in short supply
Due to the ongoing occurrence of supply disruptions, earlier predictions that things would normalize in the second half of the year appear to be wishful thinking.
The International Trade Administration (ITA) now predicts a global supply imbalance of 10,200 tonnes this year, as falling output fails to keep up with a demand resurgence fueled by the home electronics industry.
Indeed, the Tin Association predicts continued deficits in the future years, as tin demand is boosted by its use in green energy transition technologies and the developing internet of things.
Tin is practically hard-wired into everything that uses a circuit board – via solder. The metal is “the overlooked foot soldier of the energy shift,” according to Julian Kettle, senior vice president of metals at research firm Wood Mackenzie.
In an April research note, Kettle wrote, “Its usage in electronics has the potential to make it a kingmaker in terms of the energy transition.”
But only if there is sufficient supply of the metal, which is a serious concern given the historical paucity of investment in what was once considered a specialty commodity and the present production troubles and tribulations.
Other metals are benefiting from forecasts of future tightness as the green revolution gains traction, but tin is already there.
This is a market that is already suffering scarcity pricing, which shows no signs of resolving in the near future./n
