* LME tin stocks up almost 50 pct since late February
* Investors had expected deficit to boost prices
* Unexpected Chinese exports likely behind plentiful supply
* Graphic of tin stocks: link.reuters.com/byd38s
By Eric Onstad
LONDON, July 9 The export of hidden Chinese tin
stocks is likely to be behind a puzzling rise in London Metal
Exchange (LME) inventories that has frustrated investors who
expected to see shortages this year.
At the start of the year, tight supply-demand fundamentals
led to numerous forecasts that tin prices would rise.
But prices are down half a percent so far this year and have
shed nearly 7 percent since touching a peak in April, weighed
down partly by rising inventories.
Full data are not available, but analysts say that the
apparently well supplied market is due to hidden stocks in China
that are making their way onto the international market, while
demand has been weaker than forecast.
Analysts polled by Reuters in April expected the cash LME
tin price to average $23,360 a tonne this year, compared
with the current price of $22,200.
But instead of a scarcity of tin, stocks in warehouses
monitored by the LME MSNSTX-TOTAL have surged by nearly 50
percent since Feb. 27, confounding investors and analysts.
"It's wrong-footed a lot of people including ourselves,"
analyst Robin Bhar at Societe Generale in London said. "The
price action has been very disappointing."
Peter Kettle, manager of markets at industry group ITRI,
agreed that supply appeared to be greater than anticipated: "The
consensus view was that there's a deficit this year, but no one
can actually see it in real life."
INVESTORS OPT FOR NICKEL, ZINC
Meanwhile, investors have been attracted to forecasts of
shortages in nickel and zinc and piled into those markets,
sucking even more liquidity from tin, which was already the LME
base metal with the least volume.
Volumes on the LME's electronic trading platform are down
13.5 percent so far this year on last year's average, analyst
Leon Westgate at Standard Bank said.
"It seems that market attention has switched to metals like
nickel and to a lesser extent zinc, with tin seen as too
illiquid to build a decent-sized position," he said in a note.
The rise in inventories has been particularly baffling
because top tin exporter Indonesia imposed rules last year
forcing all tin ingot shipments to trade via a local platform
before leaving the country, resulting in a 21 percent fall in
exports during the first five months of the year.
"If Indonesia is not even exporting all that it is supposed
to be producing, that makes the deficit even bigger, and yet
that clearly is not showing up in price performance or the trend
in LME stocks," analyst Stephen Briggs at BNP Paribas said.
"That is a bit of a mystery to me."
50 PCT JUMP IN EXPORTS
Analysts say that more material has been available on global
markets partly due to unexpected exports from China.
Hard data from China has not been released, but Kettle
estimated that China exported around 5,000 tonnes of tin in the
first five months of the year, an increase of about 50 percent
from the same period last year.
In 2012, large amounts of tin were imported by China due to
an attractive arbitrage between the LME and Chinese domestic
prices, leading to a build-up of an estimated 20,000 tonnes of
hidden stocks, ITRI's Kettle said.
That price relationship has reversed, however, leading to an
outflow of material from China, which imposes a tax on refined
metal but not on products.
"Over the past several months, this was the first time where
the price differential has reversed, and as long as you don't
have to pay export duty, it's been profitable to export again,"
Briggs said: "We have seen in the past that when material
comes out, it tends to be categorised as tin product by China,
but is often categorised by the importing country as just
Weaker demand than expected is also probably behind the rise
in inventories in tin, which is mainly used as solder in
electronics, analysts said.
"There was a pretty good pick-up (in demand) globally in the
second half of last year, but it seems to have levelled out
now," Kettle said. "Chinese demand has been fairly flat, with
much slower growth in electronics production in the first half
of the year."
Some analysts still expect shortages to eventually develop
in tin. "Tin is only a couple of bullish stories away from being
re-ignited, with the ingredients in place for a strong rally
when it is. For the moment, however, the metal is moribund,"
(editing by Jane Baird)