LONDON (Reuters) - Tin has proved remarkably resilient to COVID-19.
The London Metal Exchange (LME) tin price hit a six-month high of $17,630 per tonne on Tuesday and is up 2% since the start of January.
Among the LME industrial metals suite, only copper has performed better.
Tin stocks are low on the London market. And they’re low on the Shanghai market. Combined inventory has halved from 14,000 tonnes in February to 7,000 tonnes.
This speaks to the heavy hit on the tin supply chain from lockdown measures in key producer countries, including China, which has imported growing quantities of refined tin this year.
Demand, meanwhile, has been holding up extremely well, judging by the resilience of the semiconductor industry, the largest end-use sector for tin in the form of nano-soldering.
The tin market’s optics are decidedly bullish, which is why the LME price is extending further its already impressive recovery from the March lows all the way down at $12,700.
LME-registered stocks totalled 7,125 tonnes at the start of the year. They now stand at 3,980 tonnes.
Time-spreads have been tight since late March, the cash premium over three-month metal spiking out to more than $300 per tonne at one stage last month.
That incentive to deliver to LME warehouses has generated almost 3,500 tonnes of inflows over the same time frame but none of the metal has stayed around for long.
The LME’s new report on shadow stocks captured only two significant hubs of “hidden” tin inventory.
A 1,900-tonne tranche showed up in the United States in March. All of it was warranted at Los Angeles at the start of April, but since then it has headed out of the LME warehouse door again. Only 340 tonnes remain, 165 tonnes of which are awaiting physical load-out.
There was also 1,800 tonnes of tin in shadow storage in Singapore in February and March but this tranche seems to have been on its way out of the LME system.
As of the end of May total shadow stocks were just 265 tonnes, all of it located at LME locations in Asia.
Shanghai Futures Exchange (ShFE) stocks have been ebbing away too. They closed last week at 3,006 tonnes, down by 2,345 tonnes on the start of January.
The Shanghai futures curve is relaxed relative to London but bullish exuberance in April and May opened up an arbitrage window, through which increasing amounts of tin are flowing.
China imported 3,675 tonnes of refined tin in May, the largest monthly total since February 2012.
The country has flipped to being a net importer of 5,800 tonnes of metal through May this year from being a net exporter of 3,900 tonnes in the first five months of 2019.
That doesn’t sound like a lot but in the tiny tin market - global production was 334,000 tonnes last year - it’s a significant change of trade trend.
Chinese tin production was struggling with raw materials supply before COVID-19. The coronavirus seems to have exacerbated those stresses, particularly the import flow of concentrates from Myanmar, which has dwindled 18% so far this year to 16,700 tonnes of contained metal, according to the International Tin Association (ITA).
The largest share of China’s imports so far this year, 5,600 tonnes, has come from Indonesia, the world’s largest exporter.
Indonesia, however, is shipping less material this year. Exports slipped by 6% year-on-year to 33,400 tonnes with PT Timah, the country’s increasingly dominant producer, trimming both production and sales due to low prices.
Elsewhere, global tin production is still recovering from stoppages due to national quarantine measures.
At one point producers in Malaysia, Brazil, Peru and Bolivia were all forced either to limit or curtail fully operations. All of them are vertically integrated from mine to smelter, meaning a fast transmission time to the physical refined metal market.
The lockdown hit to refined tin production was higher than any other base metal at around 2% of global production last year, according to analysts at Macquarie Bank. (“Commodities Comment”, June 24, 2020).
The scale of the disruption helps explain why China’s trade flows have reversed direction and why visible exchange stocks are so low.
So too does the remarkable resilience of the global semiconductor sector.
Although popularly associated with tin cans, the packaging sector now accounts for just 13% of global tin usage, according to the ITA. Almost half of all tin goes into soldering, which makes semiconductor sales a useful proxy for tin demand in this area.
“The global semiconductor market in May remained largely resistant to the widespread economic disruptions caused by the COVID-19 pandemic,” according to the Semiconductor Industry Association (SIA).
Sales in May were up by 5.8% year-on-year with the SIA’s three-month moving average up 1.3% in March-May.
The SIA, which represents 95% of the U.S. semiconductor industry by revenue, is forecasting sales growth of 3.3% this year and another 6.2% in 2021.
Which is decidedly good news for tin, given a dire performance last year, when semiconductor sales plunged 12%.
Low stocks, supply disruption and resilient demand are a bullish cocktail for tin right now, which is why it is hot on the heels of Doctor Copper as best base metal recovery from the COVID-19 price lows.
It remains to be seen how long this heady mix lasts.
Production is returning to normal around the world and it’s quite possible the sales restraint shown by Indonesia’s PT Timah has been mirrored by a build in its unsold stocks.
It’s noticeable that the LME timespread tightness has eased significantly, the benchmark cash-to-three-months period valued at $64 backwardation at Monday’s close.
That’s a small warning flag that more metal may be on its way. But it’s currently being ignored by an outright price closing in on January’s year-to-date high of $17,900.
— The opinions expressed here are those of the author, a columnist for Reuters —
Editing by Edmund Blair