NEW YEAR STARTS WITH A BANG FOR TIN MAR­KET

The Gulf Today - Business - - SPECIAL REPORT -

LON­DON: The new year has started with a bang for the tiny tin mar­ket. Lon­don Metal Ex­change (LME) three-month tin has just bro­ken up through the $20,000 per tonne level for the first time since June last year.

At a cur­rent $20,180, the price is up 11 per cent on its Novem­ber low of $18,145 and has a new spring in its step af­ter two years of con­sis­tent un­der-per­for­mance rel­a­tive to the rest of the LME pack.

To un­der­stand tin’s sud­den surge, look no fur­ther than LME stocks, which have fallen to record low lev­els.

LME time-spreads sug­gest there is no acute short­age of metal, at least for now, but two sup­ply dis­rup­tions are com­bin­ing to test medium-term avail­abil­ity.

There is also the pos­si­bil­ity that tin is ex­pe­ri­enc­ing its first elec­tric tin­gle em­a­nat­ing from the new tech­nol­ogy rev­o­lu­tion.

STOCKS PUZ­ZLES

Lme-reg­is­tered stocks of tin have slumped from 3,045 tonnes at the be­gin­ning of De­cem­ber to a cur­rent 1,505 tonnes.

Both the head­line fig­ure and the 1,110 tonnes of open ton­nage, ex­clud­ing metal ear-marked for phys­i­cal load-out, are at record lows.

The ex­change has been liv­ing with de­pleted in­ven­tory lev­els for sev­eral years, which com­bined with low liq­uid­ity in the LME con­tract, has kept time-spreads con­sis­tently tight.

What is cu­ri­ous right now is that spreads are rel­a­tively re­laxed. The bench­mark cash-to-three-months pe­riod closed Wed­nes­day val­ued at a cash premium of $30 per tonne.

In other met­als this would sig­nal cash-date tight­ness. By tin’s stan­dards, how­ever, it’s a be­nign level of back­war­da­tion. The cash3s back­war­da­tion flexed as wide as $320 last year.

There is an un­re­solved con­tra­dic­tion be­tween the cur­rent level of LME stocks and the lack of spreads ten­sion.

Ei­ther stocks will soon rise or the spreads will soon tighten.

There would ap­pear to be no short­age of metal away from the LME.

Stocks of tin reg­is­tered with the Shang­hai Fu­tures Ex­change (SHFE) are con­sid­er­ably higher at a cur­rent 7,970 tonnes.

Here too, though, ap­pear­ances may be de­cep­tive, al­beit for dif­fer­ent rea­sons.

The In­ter­na­tional Tin As­so­ci­a­tion (ITA) ar­gues that SHFE’S Oc­to­ber launch of a ware­house war­rant trad­ing plat­form for tin has stim­u­lated the trans­fer of off-mar­ket stocks to ex­change ware­houses.

This is partly due to an in­cen­tive scheme, re­ward­ing sell­ers 60 yuan per tonne of tin sold through the plat­form, but it is also down to how the new sys­tem fa­cil­i­tates the use of tin as a fi­nan­cial in­stru­ment.

“Now, Chi­nese smelters sel­dom hold re­fined tin stocks ex­cept sta­te­owned com­pa­nies and Yun­nan Chengfeng,” ac­cord­ing to the ITA.

It’s no­tice­able that the SHFE tin con­tract bucked last year’s broader trend of fall­ing in­ter­est in the Shang­hai mar­ket with a 32 per cent rise in vol­umes.

The key take­away here is that nei­ther LME nor SHFE stocks are quite what they seem. Those on the Lon­don mar­ket are prob­a­bly un­der­stat­ing and those in Shang­hai prob­a­bly over­stat­ing avail­abil­ity.

SUP­PLY DIS­RUP­TION

The ITA es­ti­mates that China de­stocked al­most 10,000 tonnes of tin last year. Re­fined metal pro­duc­tion started fall­ing sharply in the fourth quar­ter of 2018 as smelters partly or com­pletely closed ca­pac­ity due to raw ma­te­rial short­ages.

China’s smelters, par­tic­u­larly those in the prov­ince of Yun­nan, have be­come in­creas­ingly re­liant on im­ports of tin con­cen­trates from neigh­bour­ing Myan­mar.

That flow of ma­te­rial, how­ever, is slow­ing as the Wa min­ing area suf­fers from se­vere grade de­ple­tion.

The ITA es­ti­mates im­ports fell around 11 per cent to 49,800 tonnes of con­tained metal in Jan­uary-novem­ber 2018 from 55,900 tonnes in the same pe­riod of 2017. Last year’s flows would have been smaller still but for the ship­ment of around 4,000 tonnes from ac­cu­mu­lated stocks in Myan­mar.

Signs of sup­ply stress in China are co­in­cid­ing with more tan­gi­ble prob­lems in the world’s big­gest ex­porter, In­done­sia.

Ex­ports slumped 56 per cent year-on-year in Novem­ber to 3,494 tonnes, the low­est monthly to­tal since July 2016.

It was the sec­ond month of sharp de­cline fol­low­ing a po­lice in­ves­ti­ga­tion into PT Sur­veyor In­done­sia, one of the com­pa­nies that en­sures tin ex­ports com­ply with the coun­try’s strict reg­u­la­tions cov­er­ing metal pro­duced by a his­tor­i­cally free-wheel­ing un­of­fi­cial pro­duc­tion sec­tor.

Such reg­u­la­tory hits on In­done­sian ex­ports were com­mon­place a few years ago but have since be­come in­creas­ingly rare.

ELEC­TRIC BUZZ

His­tory sug­gests the lat­est ex­port spasm in In­done­sia will be short-lived with ship­ments ris­ing again once the cur­rent in­spec­tion scan­dal is re­solved.

The prob­lem of de­clin­ing pro­duc­tion in Myan­mar may prove to be a longer-last­ing sup­ply dis­rup­tor with the ITA warn­ing the raw ma­te­ri­als crunch in China could worsen in the first part of this year be­fore do­mes­tic sup­ply picks up the slack.

Right now, the sup­ply chain is be­ing tested with a draw on off­mar­ket stocks both in China and the rest of the world.

That in large part ex­plains why tin has wo­ken from its pre­vi­ous tor­por to make its early-year move on the up­side.

There is also the pos­si­bil­ity that this mar­ket is ex­pe­ri­enc­ing its first elec­tric tin­gle.

The new tech­nol­ogy rev­o­lu­tion, first and fore­most in the elec­tric ve­hi­cle race, has in­flamed other met­als such as cobalt and nickel.

Tin wasn’t on in­vestors’ radar un­til a piece of re­search by the Mas­sachusetts In­sti­tute of Tech­nol­ogy (MIT) com­mis­sioned by Rio Tinto.

The sur­pris­ing find­ing was that rel­a­tive to size of mar­ket tin will ex­pe­ri­ence the great­est im­pact of any metal from elec­tric ve­hi­cles, re­new­able en­ergy and the in­ter­net of things.

This is be­cause tin will lit­er­ally, in the form of sol­der­ing, be the ma­te­rial that glues the tech­nol­ogy rev­o­lu­tion to­gether.

It’s go­ing to be a slow burn story. Much of MIT’S fore­cast is based on what hap­pens be­yond the im­me­di­ate elec­tric ve­hi­cle im­pulse, im­ply­ing a more grad­ual usage boost than that to those met­als used di­rectly in lithium-ion bat­ter­ies.

But there is a sense that tin has just crept onto the elec­tric bull nar­ra­tive radar.

In the in­terim, how­ever, im­me­di­ate prospects are still be­holden to what hap­pens next with LME in­ven­tory.

LME time-spreads are sig­nalling there is no acute short­age of metal. We’re about to find out if that’s true.

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