Tin – Not Immune From Price Drops

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Tin is the only metal on the LME to be both higher in price (admittedly off highs of nearly $26,000/ton earlier this summer) and to have lower stock levels than a year ago. Demand in North America and Europe has been largely static or falling all this decade but rising strongly in China. Although China is the world’s largest tin producer with 43% of the whole, changes in export taxes this year have dissuaded exports to the point that China is consuming all its production internally and has even become a net importer! The swing production supporting the supply side is Indonesia where production and exports are controlled by the government. Solders account for just over 50% of tin consumption now followed by tinplate at 18%, chemicals at 14% and copper alloys at about 5% so demand has been fuelled by the electronics boom in Asia and strong global demand for chemicals.

With the marginal cost of production at only $10,000/ton however there was not much to support the tin price as the other metals crashed these last two months. With the market broadly in supply balance and any falls due to a global downturn likely to be followed by cut backs in Indonesia, the downside is probably limited. Tin is not an overly abundant mineral overly abundant material.

Proven reserves in Indonesia have fallen to just 800,000 tons or 8 years of production and miners there are having to move activities offshore dredging alluvial deposits, to maintain production levels. Demand however is bound to be hit by a slowing global economy and substitution. Demand drops, particularly in the US, has already happened over the last two years. We would expect the market to move into a small surplus again if, as expected, Chinese production increases again in 2009/10. This will have the effect of capping any significant increases until into the next decade. Standard Bank is predicting $16,000 ” 19,000/ton as their lowest and mid level predictions. With the price today at $14,000/ton we suspect even these numbers look optimistic for 2009.

–Stuart Burns

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