By Melissa Pistilli-Exclusive to Tin Investing News

Tin was the only base metal in positive territory last week.

The price of tin could continue to hold firm since cutbacks in the market have been more extreme than for other metals and tin stocks remain low, said Stephen Briggs, analyst at RBS Global Banking & Markets.

The price of tin on the London Metals Exchange (LME) was given a nearly 6 per cent boost last week from China’s Yunnan province’s announcement that it would spend about $3 million on building a 100,000 tonne stockpile of refined tin, ore and semi-finished products. The tin stockpile is a part of a wider base metals stockpile plan meant to help support local metals smelters.

The province’s plan is to build up a one million tonne reserve of base metals that will be financed by bank loans secured on the local smelters’ metal stocks. The Yunnan government expects metal smelters to obtain bank loans to finance the purchases, and then the government will subsidize the interest. The reserve stockpiling is scheduled to run from this month until the end of next year.

Yunnan Tin halts production

Despite the province’s plan to convince smelters not to curtail production and maintain jobs, Yunnan Tin, the nation’s top tin producer, has decided to halt production. “Prices have been below our production costs,” said a director at Yunnan Tin’s trade department. “We also do not have enough concentrates and we only have one furnace. We have to close it completely, which we did on December 8.”

 Yunnan Tin is considering reopening their smelting facility after February if the company has sold some of its tin to the province’s stock-piling plan.

 Stockpiling plan criticized

Yunnan Province’s plan has garnered some criticism from financial and metals analysts. It seems “the markets have adopted a wait-and-see posture with respect to China’s ability to stoke commodity demand,” said The Motley Fool’s Christopher Barker.

“The numbers look too large to be realistic,” said Leon Westgate, Standard Bank analyst. “There may be some confusion over whether they are talking about metal in concentrates or total concentrates.”

Director at Yunnan Tin has said that the plan’s quota for metals “will not necessarily be filled” because the overall volume will depend on the take-up by smelters. The director also added that Yunnan Tin has not yet decided how much tin it will sell to the government’s plan as it needs metal for term clients as well.

Other analysts are questioning the Yunnan government’s methods for setting the loan targets for local banks. A Yunnan Economic Committee official said the loans to smelters would be an investment by banks, but analysts believe the plan may not be of much help to smelters given the surplus of base metals in the market.

 ”This won’t make any difference to the problem of oversupply in commodity markets. The metal will sit there in smelters’ yards, it won’t go into consumption and it won’t deter production,” an anonymous commodities analyst told Reuters.

However, Barker believes “that the broader significance of this announcement has been widely overlooked.” The proposed 100,000 tonne tin purchase outlined in the plan represents a full year’s production in China. “Where metals analysts perceive a gesture that’s unlikely to reach fruition, I see a country moving to maintain productive capacity, to fuel the impending infrastructure build-out of a $586 billion stimulus plan,” he said.

 Although some doom and gloom analysts may view the plan as a “bailout for a foundering industry,” Barker sees a country “prudently amassing resources at unexpectedly low prices in order to enhance the efficiency of its infrastructure expenditures.”

Barker says China is smartly “acquiring hard assets to help offset its world-leading exposure to the rapidly accelerating debt of the United States.” He gives a positive forecast that further purchases are likely, which will have a long-lasting impact on base metal prices.

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