Tin faces a price fall as supply rises
Analysts say tin’s outlook is bleak as supply picks up but demand remains sluggish.
Take care, the tin cheer squad has returned with predictions that the price of the thinly traded metal could surge back to the all-time high of US$50,000 a tonne (A$75,000/t) seen at this time last year.
That boom-time price was double the US$25,000/t (A$37,300/t) of 12 months earlier, driven by a combination of reasonable demand, a supply squeeze, and uncertainties associated with the war in Ukraine and China’s lingering lockdowns.
But as I moved around London last week on a flying visit to take the pulse of a city which is clinging to its title of the world’s most important metal trading centre, it became clear that tin is unlikely to deliver an encore performance of last year’s star turn.
A more likely move is for tin to slide a little further, perhaps all the way to the US$17,000/t (A$25,400/t) seen as recently as three months ago, before a speculative surge based entirely on a belief that China’s reopening would drive tin back to record levels.
The price of tin has fluctuated wildly in recent years.
Unfortunately for tin bulls the China surge has not arrived, but a pick up in supply has.
There is a lot in those comments with the most obvious being that tin is a mercurial metal, prone to extreme price moves which is the first clue that it’s not a commodity for the faint hearted.
Tin market revitalised with new purpose
The second problem with tin is that the world does not need a lot of it despite its valuable use as solder in many electrical products, generally as a replacement for a less environmentally friendly metal, lead.
Australia was once a big producer of tin but output is now dominated by Indonesia, China and Peru.
One of the oldest metals used by man, tin was originally mixed with copper to make bronze as far back as 5,000 years ago. It later found a use in pewter, and more recently is used in plating on steel and its current fastest growing use as a solder.
Tin’s evolution to solder on circuit boards and other forms of electronics has given it a new lease of life, as has the discovery of a use on solar panels where it is combined with copper to make solder-coated copper wire – a modern variation of bronze.
Some stockbrokers and investment banks include tin on their lists of technology metals which is why there has been a burst of promotion and predictions of a return to record prices.
Supply rising faster than demand
The problem, and this is why investors should approach companies exposed to tin with care, is that supply appears to be rising faster than demand, and last year’s depleted stockpiles have been replenished.
The speed at which the tin market has flipped from supply shortage to abundance has caught close observers of activity on the London Metal Exchange (LME) by surprise.
Last month, for example, analysts at investment bank Citi were tipping a strong rise in the tin price because of supply disruptions that included delays in export licences for Indonesian miners and political protests in Peru which have also hit that country’s copper sector.
Both issues have since been fixed. Indonesia has issued new export licences and the big San Rafael mine in Peru is returning to production.
Analysts revise price forecast for tin
For Citi, those latest developments have forced a revised opinion with the bank now forecasting a continued slide in the tin price to around US$24,000/t (A$35,800/t) over the next three months, down about 7.6% on the latest LME price of US$26,000/t (A$39,000/t).
Tin’s historic association with copper can also be found in the financial analysis of the metal with its price generally trading at a level three-times higher than copper, a 3x ratio.
Citi said tin had broken the 3x ratio in 2021 thanks to supply shortages and more recently because of disruptions in Peru and Indonesia, but with the global economic outlook weakening a “bearish” outlook had emerged.
Sluggish demand could also be a problem for the tin market, especially as sales of consumer electronics slow in a recessionary environment.
“China’s output of key tin consuming goods remained in year-on-year contraction at the end of last year,” the bank said.
“South Korean semiconductor shipments (a proxy for electronics demand) also stayed sluggish in January and the first 20 days of February.”
“Global tin inventories have recovered, and we see no apparent near-term shortages. Visible inventories have almost recovered to pre-pandemic levels.”
In China, the tin stockpile held on the Shanghai Future Exchange is close to a five-year high which means the risk of a sudden shortage emerging is unlikely.
In London, investors are reported to be holding positions which assume a higher tin price in the future (net long) relative to other metals traded on the LME.
Citi said tin is less exposed to indices and the macro-fund community and has so far avoided the broader unwinding of trader positions seen in other metals over the past few weeks.
“Elevated positioning leaves tin exposed to additional selling pressures from speculators as the fundamentals deteriorate,” the bank said.
None of that sits well with some bullish recent tin market commentary which might have attracted investors to stocks with tin interests.
Now might be good time to reconsider any tin exposure.