(The opinions expressed here are those of the author, a columnist for Reuters)
By Andy Home
LONDON, March 6 (Reuters) - Industrial metals are buzzing again.
The London Metal Exchange (LME) index of base metals has risen from a trough of 2,049.00 in January 2016 to a current 2,859.20.
Fears of a global, particularly Chinese, slowdown have been largely been assuaged over the intervening year. Attention is once more focusing on supply constraints across the industrial metals spectrum.
Only one metal has been left behind.
Tin, currently trading at $19,330 per tonne in London, is down 7.8 percent on the start of January. It is the only LME-traded metal to be in negative territory.
What little fund money is committed to one of the LME’s least liquid markets has flown. The money manager net long position has halved to a one-year low of 1,173 contracts since the start of the year.
In Shanghai, where the price has arguably held up better, market open interest has slid from over 24,000 lots to just 13,400 over the same time-frame.
Why has tiny tin fallen so out of favour?
Graphic on LME tin price and stocks:
Tin’s relative under-performance has coincided with the dissipation of an aggressive cash squeeze in London that lasted most of the fourth quarter of 2016.
The LME’s benchmark cash-to-three-months spread CMSN0-3 spent most of that period in backwardation, the cash premium flexing out to $270 per tonne at one stage in November.
That spread ended Friday valued at a contango of $39 per tonne.
LME headline stocks have rebuilt from under 3,000 tonnes in November to a current 5,415 tonnes. Open tonnage, which is the metal available for contract settlement, has recovered from a desperately low 1,125 tonnes to 4,065 tonnes.
But this recovery in stocks liquidity is highly relative. Two years ago LME stocks totalled over 10,000 tonnes.
Moreover, after peaking at 5,995 tonnes in mid-February, the headline figure is falling again.
The LME contract remains a very tight space. One entity controls 30-40 percent of available tonnage and another 40-50 percent, according to the exchange’s latest dominant positions report <0#LME-WHL>.
It’s a moot point as to how long the easier tone in time-spreads is going to last.
Graphic on Indonesian exports 2009-2016:
This relative rebuild in LME stocks has taken place against a backdrop of higher exports from Indonesia, the world’s largest tin-exporting nation.
Exports jumped 180 percent year-on-year to 6,964 tonnes in January, although that dramatic percentage change is down to a low base last year, when Indonesian tin production was hit by the double-whammy of flooding and another turn of the licensing screws by the government.
Exports over the last three reported months have been running strongly at an annualised 71,000 tonnes, which seems to reflect a robust production performance by PT Timah, the country’s largest producer, in the closing months of 2016.
However, the long-term trend is still falling.
Cumulative exports last year were 63,560 tonnes, down 9.4 percent on 2015. It was the fourth consecutive year of decline.
PT Timah is aiming to lift production to 30,000 tonnes this year from 24,000 tonnes last year but it will do so in part by buying in more ore, potentially translating into lower output among Indonesia’s independent producers.
Tin producers body ITRI said it expects “officially reported Indonesian refined shipments this year to remain broadly level with 2016”, albeit with “significant uncertainty” around that forecast.
Set against the longer-term downtrends in both LME stocks and Indonesian shipments, tin’s fall from grace looks anomalous.
There is one other key factor to consider, however.
China is the world’s largest producer, but it has historically not exported much metal because of a 10 percent export duty that has been in place since 2008.
That duty has been dropped this year, opening up the potential for greater arbitrage flow of tin out of the country.
There were no exports of refined tin at all in January but that’s probably down to the lack of any official announcement by the Chinese authorities. It’s taken several weeks for even local producers to confirm that the duty has really gone.
ITRI has in the past suggested there might be significant stocks in China, although how significant is anyone’s guess.
And it’s not as if Chinese producers are immune from the ore depletion that has affected just about every other producer around the world.
Two out of the four biggest producers in the country reported lower production last year, according to ITRI.
Chinese operators have come to rely increasingly on imports of raw material from neighbouring Myanmar to compensate for falling domestic mine production.
Superficially the flow of ore across the border continues to boom, up 63 percent last year.
But, according to ITRI, analysing January’s cross-border trade, “the presence of high-grade ore in shipments has reportedly been sparce and we have lowered our estimate of average tin content (...) to 15 percent tin.”
Even Myanmar, it seems, is struggling with grade depletion.
Tin’s usage profile, concentrated as it is on soldering, is not the most exciting.
ITRI was expecting usage growth of just one percent last year, but relative to the new-found optimism pervading the rest of the industrials metal pack, tin’s under-performance so far this year still looks slightly strange.
There are still structural supply problems in this market. Six out of 10 of the world’s largest tin producers saw output drop last year, according to ITRI.
Most established producers are struggling to maintain, let alone increase, production.
Myanmar has provided a lifeline to China’s producers but it too is showing signs of the falling mine grades that are the root of challenged supply.
With LME stocks still historically low and once again sliding, the only readily identifiable reason for tin’s fall in price this year is the potential threat of more exports from China.
That country’s trade figures are going to warrant close scrutiny over the coming weeks and months.
Editing by David Evans