Chinese tin imports doubled in the two months through to July at 3,125 tons, while cancelled warrants — metal earmarked for removal from the LME system — equal 61 percent of exchange inventory.
Does that mean Chinese electronics makers are booming, and such bullish pronouncements herald a run-up in tin prices?
Not necessarily. Rather, it shows a market in distress.
Low prices have created some extreme distortions in the normal supply chain for tin that are causing previously unforeseen results.
Last year an export ban in Indonesia, the world’s biggest exporter, caused a halt to shipments. Then, as prices continued to slide, nearly all Indonesia’s smelters temporarily closed this summer, a situation that is slowly reversing itself as prices rise and smelters are brought back on stream.
Constrained ore supplies are limiting resumption to full production though, and ITRI is expecting only 92,000 tons this year against 105,000 tons last year, according to Reuters. Shipments of refined tin from Indonesia fell 32 percent in August to 5,645.87 tons from 8,298.47 tons in July as smelters closed.
With prices now back above $21,000 per ton from a low of $17,125 per ton in July, momentum is behind a return to full production, which is just as well as the demand for physical metal has pushed the LME into backwardation, with cash at $20 per ton over 3-months and the rise to 7,095 tons of cancelled warrants, according to Bloomberg’s Businessweek.
China’s imports may have doubled, but this has more to do with world prices falling below those of high-cost domestic Chinese producers. As LME prices fell, the attractions of importing became irresistible, creating a surge of imported metal and buyers seeking to secure metal from anywhere, even the LME.
In truth, while electronics exports are faring better than some other sections of China’s manufacturing landscape, they are not rising strongly. But the recent fall triggering imports has highlighted the inflection point at which domestic producers can no longer compete, and as a result we can expect prices to remain above $20,000 per ton this year.
The market is clearly tight – it doesn’t take much of a supply glitch, natural or in this case engineered, to cause a sharp run-up in prices, and while that huge 61 percent of inventory figure for cancelled warrants is unlikely to result in as sharp a run-down in exchange inventories as it might suggest, it does underline the relatively low level of global inventory available.