Tin Prices at Historic Highs on Supply Deficit

By Michael Montgomery—Exclusive to Tin Investing News

Prices for tin have remained at historic highs, falling only modestly on the month. On the LME, the price for tin has risen from approximately $27,000 per tonne, up to $32,800 per tonne as of April, 20th. The general uptrend for the metal has continued since early 2009, where prices sat at a meager $10,000 per tonne. Currently, the price is well above the pre-crash highs of 2008. The driving force behind the rise in value is simply the tight supply of the metal, and the increasing use of tin as a substitute for lead in solder for electronic equipment.

These fundamentals may change slightly as Indonesia, the largest exporter of the metal, increased exports of refined tin by 37.6 percent to 9,051.46 tonnes in March year-over-year. The improvement in the weather has increased ore shipments to smelters, and this trend will most likely continue through the summer. However, the Indonesian government has been cracking down on illegal mining operations that skew production figures. This year the police have confiscated 72 tonnes of illegal ore on the island.  All together the country projects refined tin production to hit 90,000 tonnes in 2011, up from 78,965 tonnes last year.

In the long run the growth of production of tin may be hindered by rule changes in China. Recently, Chinese officials capped the production of many base metals in the country including tin. The cap limits the growth of production of these metals at 8 percent per year. This may be an effort to reduce the growing energy demands of energy intensive metals refining. Last year the growth of many base metals in China far exceeded this 8 percent target, with nickel leading the group, growing 24 percent.

Already in 2011, “[o]utput in copper, zinc, tin, lead and nickel in the first quarter of 2011 rose on year by between 11% and 31%,” according to Chuin-Wei Yap, for The Wall Street Journal. To stay under the 8 percent growth cap for the year, Chinese producers of tin may have to severely curtail production. A good sign that prices may continue to remain high, or go higher still. This will also make China an even larger importer of the metal as it consumes more tin than it produces.

The negatives for the tin market may also be coming from China, specifically from tighter monetary policy aimed at curbing inflation. Interest rates have been raised four times since October, and China may be even more aggressive in the coming months. Last month, Chinese inflation grew at a higher than anticipated rate of 5.4 percent.  While the Chinese economy is expected to grow again this year, it may be at a much slower rate than years past, denting the consumption of tin.

Industry analysts do expect a deficit of 15,000 tonnes in 2011. “There is going to be less and less available. People will have to pay higher prices. On the supply side you have output problems, (while) consumption is strong. Its use in electronics has been pretty steady despite the downturn … there will be a supply deficit,” stated Lars Steffenson, managing director of Ebullio Capital Management. He predicts that tin could explode up to $50,000 per tonne.

Another factor at play in the tin market this year is the lack of production from the Democratic Republic of Congo in the wake of the US ‘Conflict Minerals Act.’  Mining in the county just recently resumed after a ban on mining took effect last September. According to the most up to date production figures from the USGS, tin production in the DRC in 2008 was just 11,800 metric tonnes. However, the mining ban in effect for the last 6 months will curtail production significantly. This lack of production may make the world supply deficit even larger.

Supply side tightness and a lack of new production will continue to be the drivers of the tin market in 2011. These issues will not be resolved in the short term, and may continue for quite some time. Indonesia has stated that it plans to cap tin production at 100,000 tonnes, leaving only 10,000 tonnes to grow from the predicted 90,000 output this year. With China capping production as well, supply deficits may continue over the next few years.