Tin: Short-Term Gain, Long-Term Pain

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By most people’s reckoning, tin should have been considerably higher today than it was at the start of the year. Indonesia introduced an export ban at the end of last year for a range of non-ferrous ores, including tin concentrates, in addition to requiring exports of refined metal to be first sold via a domestic exchange.

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Reasonably, as one of the world’s largest producers, the Indonesian government wanted, at least, to see more value-add processing done within the country in an effort to maximize the return from their dwindling reserves. There is a limited return to being China’s raw material supplier. The value is shared with Chinese smelters and downstream refiners to carry out operations the Indonesians are capable of doing themselves – with sufficient investment.

Their approach to restructuring the mining industry has, to put it kindly, been ham-fisted, but change is rarely smooth in these situations and after tin producers tried gaming the system this year by boosting exports of solder and alloys in preference to pure ingot, the government has changed the rules from November onward. Nevertheless, after an initial rise to $24,000 per ton in April, the tin price has fallen back some 6 percent. In the meantime, speculators must be wondering what went wrong, consumers are probably wondering why they were anxious about early rises and we are all wondering where it will go next.

According to the industry body ITRI, reported by Reuters, the reasons the price has fallen back aren’t hard to find. Exports from Indonesia have been volatile, spiking one month and plunging the next. Data has been mixed and the pre-sale on an Indonesian exchange rule has, to put it politely, had teething problems. The markets are illiquid and trades, therefore, difficult to make at prices resembling LME or global price levels. Exporters have cheated selling alloys and solder in place of refined metal and the volatility is believed to be a reflection of producers stockpiling then selling when finance costs get to be too much.

The gist of the problem has been that expected deficit has not materialized. WBMS reported this week that the January to June deficit was 2,500 tons, way down on the 10,000 tons for the year predicted by analysts earlier in the year and the market may even be in balance during the summer months. While supply has not been as squeezed as expected, demand has been depressed by a lackluster electronics industry in Asia with production in both China and Indonesia more than keeping up with a modest 2% rise in demand.

As a result the ITRI does not see prices going anywhere this year and it could be well into next year before we see them rise. Flat or declining mine production over the next five years is predicted by the ITRI to drive prices higher as it will take a price north of $25,000 per ton to spur new mine investment. In the medium to longer term prices will rise, but for the time being consumers are set for a more stable market the ITRI believes.

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