By Kishori Krishnan Exclusive To Tin Investing News Share

Commodities may be teetering on second U of the W-shaped recovery. Tin continues to face a challenge again, with a possible erosion in demand. The main culprit: the current global recession. Last week, ITRI Ltd, an international tin grouping, came up with a disturbing report stating that demand would likely drop 10-15 per cent this year, on the back of excess supply based on its survey on tin consumers.

According to Ben Westmore, commodities economist at the National Australia Bank, “We expect the second ‘U’ of the ‘W’ to be less deep than the first. Commodities are starting to see the effect of dollar appreciation and this weakness may last for one or two months.” He added: “But we see the trend in global industrial production rising in the fourth quarter and markets pricing that recovery in during the third.”

He added there was a risk that China, which to date has been the main engine of the surge in commodity markets, might not pick up the ball and run with it in the second half of the year. “If China feels like it has stockpiled enough and demand doesn’t pick up, then the weakness could last longer, though that is a risk, not a forecast.” he said.

However, determining the percentage of each commodity being stockpiled is difficult, especially in China, where scant data are released. Assessing steel demand, in particular, has become a subject of almost obsessive interest among economists as a barometer of emerging markets’ health and as an indicator of demand for things like iron ore and cars.

Some economists insist they are bullish on commodities though, because they believe that the United States and European economies are on their way to recovery. “The commodity price rally is for real,” said Ajay Kapur, the chief global strategist at Mirae Asset, a big Korean financial firm. “I’m not expecting any huge correction from here.”

Tin stock

In 2007, world tin usage peaked at over 360,000 tonnes, having grown at some 4 per cent a year over the previous decade. Growth rates in fact were slowing even before the onset of recession and demand dropped very sharply in the final quarter of 2008.

Tin surplus as at end-April was at 8,500 tonnes, the highest since 2005 while the price of the commodity has dropped about 26 per cent so far this year.

However, industry observers still cannot figure out whether the drop in tin demand is entirely due to reduced usage, consumers running down their tin stocks or reduced stocks of semi-finished tin products. Apparently, there is still a lot of uncertainty on consumer stock levels over the past quarters.

In Malaysia, a potential drop in tin demand could stall the Malaysian Chamber of Mines’ initiative to push for further exploration and opening of new tin-rich mines particularly in the Kinta Valley area.

Even though Malaysia is no longer a major tin exporter, Malaysia Smelting Corp Bhd, the country’s sole tin company, is ranked the world’s third-largest tin refiner based on its operations in Malaysia and Indonesia.

Outside Indonesia and China – the two world’s largest producers – ITRI has identified mine projects with combined annual capacity of some 38,000 tonnes a year and possible projects with a capacity of around 35,000 tonnes a year.

Company news

PT Timah, the world’s largest integrated tin producer, has cut its 2009 capital expenditure by half to Rp 350 billion ($34 million) from Rp 700 billion, saying that it believed the demand for tin may not recover this year.

“The world’s economy is not getting any better,” said Wachid Usman, Timah’s president director. “Therefore, we have to revise our capital expenditure this year with some of our projects, such as the asphalt project in Buton, South East Sulawesi, until the economy recovers.

“The new levels of capital expenditure this year at Rp 350 billion will be sufficient,” Usman said, adding that this would not allow Timah to acquire coal mining concessions. Usman said that the current global economic crisis had caused a slump in tin demand and company profit.

“In 2007, the world’s demand for tin was at 350,000-360,000 tons, but it decreased to only 320,000 tons last year. We expect tin demand will be at about 300,000 tons this year,” he said. Timah expected to sell about 46,000 tons of tin this year, slightly down from last year’s sales of 46,438 tons, said Abrun Abubakar, Timah’s corporate secretary.

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