Global tin market: the slow road to recovery

Excess supply and slowing demand have conspired to make tin one of the poorest performing commodities of 2015, but is its future quite so bleak? Elly Earls speaks to IHS senior economist Frank Hoffman in this special commodity focus.


Tin

The tin market has continued to spiral downwards this year, depressed mainly by a supply glut due to increased production in Myanmar and weakening demand for the metal from China, as well as a strong US dollar. Moreover, tin has also been identified as the number one conflict mineral and targeted by new legislation to prevent illegal flow, further complicating the market. But is the outlook for tin's future as bleak as its performance has been this year or are the fortunes of the metal, of which 53% is used as a solder for electronic goods, set to improve?

Tin is so far one of the worst performing commodities of 2015. According to Bloomberg, this year the metal saw its biggest first-half decline since at least 1990, with prices hitting five and a half year lows - of $14,550/metric tonne (mt) - on the London Metal Exchange (LME) back in April. And they haven't recovered much, demonstrated by the tin cash price closing at $16,087.50/mt on the LME on 16 October, a decline of around 16.6% compared with the same period last year when it stood at $19,295.

Supply glut

This is largely down to two key factors - plentiful supply, most notably from Myanmar, and declining demand from China. IHS Global Insight Pricing and Purchasing Service senior economist Frank Hoffman says: "Base metals and commodities in general have struggled in part [due] to a slowdown in aggregate demand from China and emerging markets in general." Adding that, "on top of that, the emergence of Myanmar as a major tin exporter has increased the global tin supply, further pushing tin into surplus."

"The emergence of Myanmar as a major tin exporter has increased the global tin supply, further pushing tin into surplus."

Indeed, thanks to Chinese investment, Myanmar's contribution to the market has surged from nowhere to around 21,000t of tin ore a year, most of which goes to China, according to Macquarie Analyst Stefan Ljubisavljevic, speaking to the Wall Street Journal in April. And the world's largest tin exporter Indonesia has struggled to respond, with export bans that the country imposed in April in an effort to stop prices from falling having little impact. Analysts have attributed this to the fact that companies may have rushed to export more before the ban came into force.

According to Hoffman, supply will remain strong for the foreseeable future. "This is a relatively well-supplied market, and I suspect this will be the case for years to come," he notes. "With Myanmar's emergence as a large supplier of tin concentrate, there is certainly plenty of capacity in the market. And while visible inventory has been shrinking (especially when expressed in weeks of consumption), which is supportive for higher prices, my impression is that there's a good amount of off-exchange inventory in Indonesia, as Indonesian producers didn't actually cut production until late April or so."

Steady solder demand

It's not just the supply aspects that have been depressing tin prices; demand is weak too, says Hoffman: "Global tin consumption through the first six months of 2015 is down 6.2% from the same period last year. While China was a source of strength in global consumption last year, it has been a hindrance so far in 2015, as Chinese 2015 H1 consumption was 12.4% lower than its 2014 H1 figure."

The outlook for the future is slightly more hopeful, however. "Going forward, I expect demand to modestly increase, as steady electronics demand growth fosters tin demand," Hoffman predicts, stressing that as tin's largest end-use is as a solder, global electronics production is the key factor that determines the metal's requirement.

On the negative side, miniaturisation could provide a headwind for tin demand, as smaller electronic products would likely use less tin, while tinplate products can be substituted for aluminium, meaning the price of that metal would indirectly affect tin demand.

Beyond the fundamentals

Outside of the market's supply-demand fundamentals, the strong US dollar has also had a significant impact on tin prices and is likely to continue to do so. "Tin is primarily purchased on the LMEwhere transactions are in dollars and obviously a stronger dollar makes these transactions more expensive for consumers from other countries, which provides a headwind for prices," Hoffman explains. "The trade-weighted dollar is inverted, so you can see that there is a pretty strong correlation between a stronger dollar and weaker tin prices."

"There is a pretty strong correlation between a stronger dollar and weaker tin prices."

The last big factor that is set to influence the tin market moving forward is new legislation designed to stem the illegal flow of four conflict minerals, and according to the US Government Accountability Office (GAO), tin is top of the list. Yet, when it comes to prices, the new laws - if implemented well - could actually have a positive effect.

"If correctly implemented, it would exert upward-pressure on prices, as supply would diminish, all else equal," Hoffman explains. "Indonesia in particular has been worried about this, and has implemented legislation to channel exports through approved channels - however loopholes tend to remain after each round of legislation. While Indonesian exports have been volatile, there has been a downward trend over the past five to ten years, showing that this type of legislation does at least have an effect on volume."

Looking forward, the outlook for tin is positive, although mildly so. "Prices will slowly grow over the near and long-term, though prices on a quarterly-average basis will likely remain below $16,000/mt through to the end of 2016, with the caveat that price volatility will persist," Hoffman concludes. "Overall, strength in supply will work to keep price growth very modest."