Copper bulls love to point to Chinese demand and a constrained supply market to support the assertion copper prices should be higher, but in fact a far tighter supply market can be found in another base metal – tin.
And as for demand, China imported 28,000 tons in the first 11 months of 2012, an annual all-time high and up 45 percent from 2011.
The case for much higher prices can be made more readily, more logically, for tin than for any other of the leading base metals, and here’s why.
Firstly, the supply side, because that’s where the primary dynamic is coming from; Indonesia is the swing producer. Likened to Saudi Arabia’s position in the oil market, Indonesia is the world’s largest exporter.
It can be argued that, when prices crashed to below $18,000 per metric ton in the summer of last year, enabling the recovery to current levels of nearly $25,000, can largely be put down to Indonesia shutting refining capacity.
Indonesian top producer PT Timah warned in November its full-year 2012 production would fall to 29,000-30,000 tons from 38,132 tons in 2011, as it cut production to control costs. Even so, total Indonesian exports in 2012 were up 3 percent at 98,817 tons, according to Reuters, showing that even in a weak demand environment (China was slowing in 2012 and the West was little more than stagnant) the slightest restriction in supply was enough to lift prices significantly.
The sad fact is ore grades are dwindling and new mines are few and far between. Production from Peru slid 10.5 percent to 19,517 tons and from Bolivia by 7.3 percent to 6,487 tons in the first nine months of 2012.
Now Indonesia is looking suspect for 2013; according to Wayne Bramwell of Kasbah Resources, an Australian miner with tin and gold resources under development in Morocco, Indonesia has issued new export regulations restricting the sale of refined metal with less than 99% tin.
Export licenses in Indonesia will be issued only for material of 99.9% purity or better, forcing smelters into costly upgrading, which will take time and without a higher price, force some out of business. Kasbah’s own jewel in the crown, the Achmmach Project, is to start delivering concentrate in 2015, adding much-needed supply to Asian smelters.
According to the World Bureau of Metal Statistics, tin was in deficit to the tune of 11,500 metric tons from January to November 2012. Indeed, the metal hasn’t been in surplus since 2008 when there was a slump in demand due to the global recession. As a recent BNP Paribas report illustrates this point graphically, global stocks remain low:
The LME currently shows 12,860 tons, less than two weeks’ supply, yet that is without almost a quarter being in the form of canceled warrants, meaning it has been earmarked from withdrawal according to Reuters. today’s metal prices – MetalMiner IndXSo if the supply market is so tight, why aren’t prices already at $25,000 or 30,000 per ton?
If the supply market is so tight, as we explored in Part One, why aren’t prices already at $25,000 or 30,000 per ton?
Well, tin has certainly been characterized by boom and bust.
When the metal price last hit an all-time high of $33,600 per ton in April 2011, China stopped importing and actually became a net exporter as volumes of tin products rose. The price then crashed in the following six months to nearly half.
The BNP Paribas report observes that what makes tin’s price performance – both in 2012 and since 2001 – all the more remarkable is that it has been achieved despite demand being relatively weak.
Tin demand fared reasonably well up until 2006-07 compared with other base metals, boosted by the migration to lead-free, high-tin-content solder for the European market.
But since then it has fallen behind, due to a drop-off in demand for consumer electronics and de-stocking, as this chart from the bank illustrates.
The report states that tin’s poor demand record since 2007 has both structural and cyclical causes.
Usage in chemicals (said to be 15 percent of overall demand) and several small applications has shown some growth, but tinplate and float glass (together around 20 percent) have been broadly flat. More importantly, solder use has fallen since 2007 (when it accounted for 55 percent of demand), first largely through miniaturization and thrifting, and then in 2012 due to a downturn in the consumer electronics and home appliance markets, hitting Chinese solder manufacturers hard.
Tin’s shorter-term demand prospects depend more on the health of solder’s end-use markets, and there BNP sees growth of 3.5-4.0 percent in 2013, applying further pressure on the constrained supply market. Much of this will come from the Asian electronics market, particularly China.
So if Indonesia controls the bottom of the market, then China can be said to control the top. Even so, many observers are expecting further strength in the tin price this year.
Edward Meir, senior commodities analyst with INTL FCStone, is quoted in Resource Investing News as saying he could see the price up to $28,000 per ton this year, but with the average around $23,300 per ton.
Wayne Bramwell is more bullish, saying the price could be above $30,000 by the time his project comes on-stream in 2015. With the supply market as tight as it is, it would not take much of a global recovery to prove him right.
Read original article here.
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