It must have been a nightmare trying to manage price risk at tinplate and solder producers these last two years. The bull narrative for tin seemed to be set fair at the end of last year; on the back of supply tightness, three-month prices charged to an all-time high of $33,600 per ton in April before halving to $17,000 last week. Hand in hand with this perversity, stock levels have gone in the opposite direction of those expected. As Reuters points out, as prices rose, so too did stocks; rather than the deficit leading to high prices, the high prices led to a surplus. LME stocks, which were expected to fall, kept on rising through the first half of the year, peaking in August at 23,425 tons. According to Reuters, ITRI shows the source to be Chinese smelters, selling off stocks accumulated during 2009.
Is That All?
It gets worse. Although prices have collapsed, physical premiums have begun to pick up in Europe as more than 26 percent of LME stocks are earmarked for physical draw-down. So where is this physical LME stock draw-down going? Probably back to China. The Chinese appear to be in re-stocking mode now that prices have halved, but with credit tight, the re-stocking will not be on par with that seen in 2009. At the same time, state-owned Timah in Indonesia, the biggest exporter, has announced they will ban exports. This is unlikely to happen, but the paper observes that at current prices, many smaller smelters clustered around Banga Island are losing money and, as such, have little incentive to carry on exporting, although exports won’t stop; as term-contracts will no doubt be honored, volumes will certainly drop.
Maybe more worrisome for tinplate and solder producers is medium-term new mine supply. The original bull narrative of supply tightness for tin has eased in the short term, but the price collapse is likely to exacerbate the problem in the medium term as new mine, expansion and refurbishment projects are put on hold. No major new supply sources exist and no major mine projects were announced, even when prices were at twice current levels. At current levels, even those smaller projects announced in recent years look less attractive. It can only be hoped for investors to look past the current price at the longer-term picture for tin and stick with their projects.
Give Me the Longview
So what is the longer-term picture for tin? A recent presentation by Wayne Bramwell of Kasbah Resources, owners of the Moroccan Achmmach tin resource, predicted continued strong demand for tin largely due to the electronics industry’s demand for solder. Observing that every mobile phone contains 7 grams of tin and every car something like 1 kilogram, Bramwell advised demand would remain solid in the face of tightening supply options. Kasbah is not alone in expecting prices to rebound to $25,000+ a ton this year, but with so much investor sentiment relying on a resolution to the European debt crisis, a return to market fundamentals determining price may not occur before next year.