Although LME tin prices dropped along with every other base metal in late 2008, as the following chart, courtesy of the LME illustrates, it didn’t drop as far in percentage terms as many of the others. Moreover, the fundamentals have remained fairly strong suggesting the up turn will be solid and less volatile.
The largest market for tin, solders, has been heavily impacted by a down turn in consumer electronics but other markets in tinplate and chemicals have so far held up reasonably well.
Graph courtesy of ITRC
With over 60% of supply coming from just two countries, China and Indonesia, and within those countries production concentrated with major producers Yunnan Tin and PT Timah, production cut backs have been rapidly applied and stocks have not been allowed to rise. In fact according to the Malaysian Tin Products Manufacturers AssociationÃ‚Â MTPMA total country stocks have fallen during 2008.
In China, the Chenzhou state government has purchased stocks from Yunnan to support the market with reports it could buy up to 30,000 tons this year ” that is 25% of last year’s total Chinese production. Meanwhile PT Timah are reporting lower production in 2008 than 2007 with declining onshore production following a clamp down on illegal mining and a rise in off shore mining, though overall production was down nearly 20%. This year however, monthly output has been holding up well and is comparable to the same period in 2008 according the International Tin Research Institute ITRI.
Electronics demand will only come back with consumer confidence particularly in western markets, unlikely before 2010 as house prices and rising unemployment put a cap on discretionary spending. China is a net importer of tin under normal trading conditions, to feed the massive export driven electronics market but with demand down around the world domestic sales are nowhere near enough to take up the slack. Meanwhile, new tin projects and expansion plans both in China and around the world are being put on hold or mothballed. With most mines operating on a marginal cost of production at $10,000/metric ton according to resourceinvestor.com miners will want to see the price rise significantly and consistently above the current $11,500/metric ton level before returning to the fray. Though a return to the $25,000/metric ton price level seen a year ago is not on the cards, it is likely tin has seen the bottom and will be supported in a $11,000-13,000/metric ton range for much of this year.