The tin market is a confusing picture for a number of reasons. Combined, they make predicting where the price may be later this year exceedingly difficult. However in the best MetalMiner tradition we will seek to have our say.
The case for tin has been largely supply side based for the last few years. China and Indonesia are by far the world’s largest producers, with only Peru coming a distant third according to the US Geological Survey. So it is not surprising that supply disruptions due to governmental interference, declining ore grades and lately low prices have been the main drivers of prices. Both China and Indonesia have suffered from declining ore grades. In addition, the Indonesian government has fought to prop up prices by closing illegal mines and pressuring smaller private smelters to close. Then as volumes dropped alarmingly and unemployment rose they tried to encourage smelters to start up again. In fact, the government urged the largest miners to move to offshore dredging to maintain ore grades. The result has been yo-yo production and a great deal of consumer anxiety ” food for the speculative investors who drove the price to $25,500 per ton last year.
As solder and chemicals demand have collapsed in the 4th quarter so has the price, dropping below $10,000 at the year end but since recovering to around $11,000 today. Global consumption actually fell in 2008 by 5.5% according to the World Bureau of Metal Statistics with only tinplate actually growing by a modest 1%. As demand has almost certainly continued to fall this month, so has production. Standard Bank estimates Chinese refined production fell 18% in 2008 and is continuing to fall this year largely due to a shortage of raw material.
So the degree to which constrained supply manages to meet reduced demand is not a clear one. What seems likely is the prevailing bearish sentiment will continue for the first quarter and probably the second. But, if demand recovers even a little or additional smelters close, it is possible prices will pick up significantly in the second half. Not because demand is going to come roaring back but because supply is so constrained. Stocks are at historically low levels both with merchants and on exchanges so there is little buffer in the system to meet supply disruptions or an uptick in demand caused by merchant re-stocking for example. Consequently some analysts such as Barclays and Standard Bank are predicting prices over $15,000/metric ton by year end on the basis that the recent sell off has been over done.
We expect the bearish sentiment to continue and though we accept the downside is supported around $10,000, the upper end is probably equally limited by lack of demand to $12,500- 13,000/metric ton in the second half of 2009.
–Stuart Burns & Lisa Reisman