MyValueResearch

Tin… Can This Unsung Metal Keep On Shining?

What an astounding rally Tin prices has witnessed in the recent past. A lesser-known metal has slowly climbed to news highs. But the billion-dollar question is that the current bullish momentum can be sustained in long run or not?

Earlier Tin was considered unworthy of notice because its market is a smaller compared to its peers like Copper, Zinc and Aluminum. Kuala Lumpur Tin Market and LME are the key benchmarks for the Tin prices worldwide.

Now lets have a glance at the remarkable journey of Tin, which has witnessed breathtaking bull run in the past. This massive bull run which has started since the end of 2005 where prices were hovering around $6000 per tonnes went shooting up to more than $25000 per tonnes in 2008. That is astonishing jump of 400% in merely 2.5 years .In this year itself it has climbed from $16000 per tonnes to $25000 tonnes, which is amazing rally of 53%. The key reason behind the bull run is the uneven production from Indonesia and erratic exports from China.

Hedge funds played a key role in pushing the price of Tin to all time levels. Following the U.S. subprime loan crisis and a series of rate cuts by the Federal Reserve, the flow of funds to the commodity market sharply rose as commodities were considered a safe haven against the weakening dollar. So Tin is among the commodities that has gained from the flow of the new money.

This lesser known metal has many key uses like Tinplate, Tin alloy coatings, Solder, pewter and chemical compounds. But in the current scenario the significant use of Tin is in soldering. Growth in the Asian electronics industry and replacement of lead-based solders are the key triggers for Tin consumption in the world.

Current Scenario of Tin worldwide
The record surge in the prices of Tin is attributed to disruptions in Tin supply coming out of Indonesia which is having pronounced effect on world Tin supply, decline in Chinese supply and increasing use of Tin in soldering worldwide.

Indonesia being the world’s largest producers of Tin produced nearly 85,000 tonnes of Tin in 2006, surpassed only by China who produced 100,000 tonnes in the same year.
It is interesting to note that marginal costs the level at which production becomes unprofitable is only $US10, 000 a tonnes.

Demand concerns have made the market more watchful of stock movements and prices are reacting heavily to inventory builds.30% reduction in Indonesian Tin exports has caused the world demand forecast to outweigh predictions for supply by 30,000 tonnes.

Recently Indonesian Government cracked down on illegal Tin miners and smelters and instituted more stringent export regulations. China and Indonesia are confirming supply limitations for Tin, triggering a LME price above $25,000/metric ton ($11.34/lb) for the first time

Currently apart from the supply demand fundamentals its price are also being affected by the investment demand. Despite the fall in production, tightness in the Chinese refined Tin market has eased considerably since March as this price elevation will curb demand by the packaging and electronic industries and discourage the use of the silvery metal in new areas.

Indonesia is the world’s largest exporter of it and the world’s second-largest producer of it after China. The mining boom has created windfall profits for mining companies around the world.

Lets have a look at Major Tin belts in the world
Major deposits of Tin are in South America and it runs from Bolivia over to Peru and right up into the Western Amazon area of Brazil. The bigger one though is over in Asia. It starts on the island of Tasmania off Australia and runs up through Indonesia and Malaysia, Singapore and on up through Burma and Vietnam on up to the outer reaches of China and Russia.

China factor… Thirsty dragon for Tin
The surge in the global Tin prices is also due to decline in Tin production in China, which was partly due to extreme bad weather in January-February coupled with continuing shortage of concentrates and scrap for smelters.

Recently the April production of refined Tin stood at 11,703 tonnes, 10.5% lower than in the same month of 2007, while cumulative production in the first four months of this year, at 42,183 tonnes, was 11.9% down. However the recent earthquake in Sichuan has not had any impact on Tin operations.

It is worth noticeable that China remained a net importer of refined Tin. Since last September China has only been a net exporter in one month, December 2007, when a small burst of export shipments preceded the imposition of a 10% export duty from 1 January. China is also stepping up its imports of Tin concentrates, which rose 16% YoY to 590 tonnes in April 2008.

Tin market will also be supported by the fact that the China has imposed export duty in order to cutrail exports because it being the net importer of this metal. China introduced a 10% tax on refined tin exports from January 1, 2008 in an apparent push to keep more for its own rampant demand. This tax is likely to dent exports, and in turn reduce global supply.
Recently Yunnan Tin Co., the world’s biggest producer and based in China’s southwestern province, has halted shipments because of a lack of buyers willing to absorb China’s new and higher export duty.

Indonesia factor…
Indonesia is the world’s second largest producer of refined Tin, behind China. Indonesian supply issues continued to dominate supply-side fundamentals in 2007, as the government continued its efforts to consolidate refined and concentrate Tin production. As a result global refined Tin production fell 2% in 2007.

Recently Indonesian government in order to limit exports strictly implemented its existing export licensing system in place of earlier supply quotas. Meanwhile PT Timah of Indonesia reported sharp drop in Tin production in the Ist quarter 2008. Indonesian supply uncertainty is expected to persist in 2008.

Outlook
The recent exponential rise in Tin prices which have crossed over $25,000/tonne has been fuelled by news about actual and potential supply problems in China and Indonesia, but some caution is advised at current levels for short term but long term scenario looks promising.

The rises reflect global factors such as strong economic growth, low interest rates, boom in China and increasing investor interest in commodities.

According to CRU estimates, consumption was flat in 2007. Coupled with falling supply, this led to an annual supply deficit of approximately 8,000tonnes.The electronic solder business, the primary source of demand, continues to increase demand for Tin as the growing trend for lead-free solder persists. Consumption is expected to be strong in the first half of 2008, causing further surge in its prices.
There are so may factors indicating the strong uptrend in the prices but there are some factors, which could soften the prices. These are US recession or a slowdown in global growth could undercut Tin demand. At the same time, if Indonesia loosens its grip on its Tin production, a surge in Tin supply could enter the global market. Also, the current price of Tin relative to current stock levels is unprecedented in the last two decades, suggesting that a price correction might be in order. However, the most likely scenario is that worldwide supply will likely remain depressed in 2008 with continued Indonesian regulatory uncertainty and the newly introduced Chinese Tin export tax.

Tin is looking attractive for long term for investors due to its strong fundamentals .The demand is strong, while the supply is decreasing. Supplies from Indonesia have been declining since the government cracked down on illegal miners in Bangka Belitung in the last quarter of 2006, while China has curbed exports by imposing export taxes on the metal, and Congo, Africa’s largest Tin producer, has banned the export of the metal from a big producing area of the country that is controlled by rebels.

It is expected that Tin price will further surge in long term and surpass the price of Nickel, making it the most expensive metal by tonnes in LME.