Tin Is In: VM Group

With metal prices dropping like ducks in hunting season, the price of tin has remained surprisingly resilient — tumbling just 17.5% from the start of the year compared with nickel (55.8%), zinc (51.5%), lead (41.9%), and copper (40.6%).

Supply-side risks are setting the metal apart from its peers, a London- based commodities research group argues.

“Tin is now the darling of base

metals,” according to the VM Group, which covers commodities including precious and base metals and energy products.

Cutbacks by China and Indonesia, the world’s top two tin producers, have created a floor for tin prices, the research group argues in the November issue of Fortis Metals Monthly, a report it produces for Fortis Bank.

China already has cut its 2009 export quotas for tin by 30% from this year and its exports of refined tin and alloy fell 97.9% in the first nine months of the year. Yunnan Tin, China’s biggest producer, has said it will slash its output by 30% in the fourth quarter. (Tin is widely used in China’s electronics industry, where the metal is used in lead-free solders.)

At the same time, tin exports from Indonesia plunged a year-on- year 67% in October. Small, independent tin producers on the Bangka-Belitung Islands have halted production, the report notes, and the smelters aren’t likely to reopen until January at the earliest. The country’s largest tin producers, PT Koba and PT Timah, have also reduced output.

In addition, violent unrest in the tin-producing North Kivu province of the Democratic Republic of the Congo (DRC) has also supported a floor for tin prices. The VM Group reports that the DRC government plans to ban ore exports from January 2009 in North Kivu, South Kivu and Maniema.

Overall, supply is extremely tight and the VM Group forecasts a supply deficit of 20,000 tonnes this year. LME tin stocks, at just three days of global consumption, are at historically low levels. (LME stocks of nickel by contrast are at a nine-year high.)

The VM Group is also more optimistic about tin prices than other base metals because the outlook for tin plate is so positive, it argues, “as sales of cheaper canned food have benefited from the economic turmoil.”

As of Nov. 14, tin was trading at US$14,025 per tonne, down from an average over the last 12 months of US$19,099 per tonne.

The VM Group forecasts a strong short-term price floor of US$12,500 per tonne and anticipates the average three-month LME price for 2009-2011 will be US$15,000 per tonne.

Originally known as Virtual Metals, the VM Group of commodity consultants is based in the U. K.