(The following excerpt from The Commodity Refiner, a monthly publication of Barclays Capital Research, provides an overview of the international tin market.)
Improvements in demand are evident in the tin market.
Despite poor economic data from the European region, tin business was reportedly strong during the second quarter, particularly from the chemical industry, and demand from the solder sector has also picked up.
But the picture is not all positive, as the German tinplate market is suffering from substitution into polyethylene terephthalate (PET) and glass. Demand strength has also been evident in the Japanese market, supported by the electronics and auto sectors, while the first signs of improvements in the U.S. are now also occurring in the chemicals and solder sectors.
In light of this, and owing to the geographical distribution of tin production, European physical premiums have seen a sharp increase. Premiums have been further boosted by the fact that 80% of the total London Metal Exchange (LME) stockpile is lower in grade (99.85%) than most consumers require.
Practically no tin is produced in Europe, though there have been several production disruptions in the Australasian region, where most of today’s production does occur. The 10,000-tonne-per-year Renison tin mine in Tasmania (owned by
Thanks to a healthy demand picture and a constrained supply side, reported inventories of refined tin have continued to decline, by about 16% during the first half of 2003 to only 21,000 tonnes. In contrast, inventories of concentrates continue to rise, with the stockpile at PT Timah having risen by as much as an estimated 16,000 tonnes over the year (to 26,500 tonnes) by the end of the first quarter. However, concentrate inventories are believed to have stabilized now, thanks to reduced production rates at smaller mines.
Indonesia’s ban of exports of tin-in-concentrates last year has had a positive impact on tin prices, and the phenomenon of stockpiling can be compared with similar features in the copper and nickel markets, where the withholding of material has had supportive market effects. As has been evident in the nickel market, the release of material will help prevent price spikes and perhaps have a stabilizing effect on the market.
Western Europe remains the largest consumer of tin, for it is a major producer of tinplate (one of the key end-uses of tin, apart from solders and chemicals). Based on numbers from CRU International (and after some revisions to historical data), we estimate that European consumption will reach approximately 72,000 tonnes by 2004, while Chinese consumption is rising at an even faster rate (to an estimated 62,000 tonnes by 2004). The U.S. is lagging behind these two regions; it is likely to consume 49,000 tonnes in the same year.
It is difficult to draw any firm conclusions on trading activity from the relationship between LME futures open interest data and prices. However, declines in open interest and broadly sideways movement in the tin price suggest there has been a degree of short selling.
Tin remained the least actively traded metal on the LME in May, with only 132,000 contracts traded. It was also the only metal to see volume decline on an annual basis, falling by 6% over the course of the year. Nonetheless, reduced trading volumes on the LME have been accompanied by a year-over-year price rise of 14%.
The whole tin forward curve remains in a full contango, with the shape of the curve largely unchanged from recent months. However, prices for all future dates are now trading around lower levels than two months ago. Despite our expectations that this market is moving into deficit, the price levels imply that the market perceives good metal availability over the next 15 months.
The cash-to-3-month spread was slightly smaller (at around US$20-25 per tonne) by the end of the second quarter, compared with the beginning of the quarter. While the contango suggests overall good availability, the somewhat tighter spread might signal upcoming metal tightness of material for prompt delivery. This follows a period at the beginning of March, when the spread tightened temporarily to a small backwardation.
Physical spot premiums are generally firm, especially in Europe, where they have risen sharply this year. Because of low availability of tin in Europe (especially for high grade material), physical spot premiums have risen to record levels of US$190 per tonne for 99.9% tin in Rotterdam.
Despite a 6,000-tonne net inflow at Singapore during a few days in mid-March, the overall LME tin inventory trend remains sharply down. This is in line with concentrates shortages outside Indonesia, which have restricted refined production, and a decent demand picture. The total LME tin stockpile stood at about 21,000 tonnes at the end of June, a level 16% lower than at the start of the year.
Cancelled LME tin warrants have been volatile over the same period and do not provide any clear direction over future inventory flows. Still, about 2,500 tonnes (or about 10% of the total remaining) is due to be shipped out. Restricted refined production is also likely to ensure that inventory levels remain low, as there are signs of demand picking up.
Owing to the declines in LME inventories, the total reported stockpile has moved away from long-term highs registered in August 2002. Producer and consumer stockpiles are relatively small, at about 8,500 tonnes and 10,800 tonnes, respectively, according to estimates for the end of the first quarter.
We estimate that total reported tin stocks represent 7.9 weeks of consumption in the second quarter, which compares with 10.5 weeks a year earlier (though there is virtually no change compared with the previous quarter). This is still relatively high compared with six weeks registered in 2000. However, there does not appear to be a clear relationship between this ratio and the price.
The latest official Chinese customs statistics show exports of refined tin amounted to 2,500 tonnes during May, which was 6.3% higher, year over year, but marginally below the previous month’s level. As domestic refined tin production is likely to decline this year (potentially sharply), we expect Chinese tin export volumes to remain modest.
— Kevin Norrish is head of commodities research/energy and Ingrid Sternby is the base metals analyst for Barclays Capital Research. The opinions presented are the authors’ and do not necessarily represent those of the Barclays group. For access to all of Barclays’ economic, foreign-exchange and fixed-income research, go to the web site at barclayscapital.com. Queries may be submitted to the authors at kevin.norrish@barcap.com and ingrid.sternby@barcap.com
Be the first to comment on "Tin production disrupted in Australasia"