(Repeats with no changes. The opinions expressed here are those
of the author, a columnist for Reuters)
By Andy Home
LONDON, Nov 30 Tin has been largely immune from
the speculative froth whipping across the rest of the industrial
Yet the soldering metal remains the second-best performer
among the core base metals traded on the London Metal Exchange
(LME), its 45 percent year-to-date gain eclipsed only by zinc,
which has seen prices rise almost 73 percent.
This is because even prior to this month's China-fuelled
commodities rally, the tin price was already reflecting
structural supply-side stresses.
LME stocks remain chronically low and time-spreads
There is a sense this market is finally starting to buckle
from the combination of declining production in Indonesia, the
world's biggest tin exporter, and years of underinvestment in
new mine capacity.
It would have happened sooner were it not for a massive and
largely unforeseen production surge in Myanmar, which has become
a major supplier of raw materials to Chinese smelters over the
last few years.
The Man Maw mining district on the border with China has
plugged the supply gaps elsewhere in the world.
The sustainability of the Myanmar mines was already a key
concern for the tin sector.
Such concerns will be heightened after a Reuters report
highlighting the potential for tin products sourced from the
country to fall foul of U.S. sanctions.
Graphic on LME tin stocks and spreads:
NO RELIEF IN LONDON
The London tin market is experiencing sustained tightness
due to low stocks.
The benchmark cash-to-three-months spread has been
trading in persistent backwardation since the middle of
As of Tuesday's close, cash tin was commanding a premium of
$205 per tonne over that for three-month delivery.
The LME's latest market positioning report <0#LME-WHL> shows
a dominant long holding between 40 and 50 percent of available
stocks. The previous report showed two holding up to 90 percent.
That, however, says more about the level of available stocks
than it does about the size of those positions.
Total stocks stand at 3,105 tonnes. Strip out the metal
earmarked for physical load-out from the LME warehouse system,
however, and what is available for the settlement of positions
stands at just 1,800 tonnes.
This is not the first time that tiny tin, one of the less
active contracts traded on the LME, has seen the front part of
the curve squeezed.
Indeed, it's been an increasingly regular phenomenon since
the middle of 2015, again reflecting low stocks liquidity.
What stands out this time around is how little metal has
been drawn into the system by the premium to deliver to the LME.
Since the start of September, when the front part of the
curve started contracting, only 950 tonnes of tin have been
warranted in the LME system.
Over the course of a similar squeeze in August and September
last year, over 3,100 tonnes were delivered into LME warehouses.
Physical availability is being tested and so far at least
has been found wanting.
The most obvious reason is the continuing slide in shipments
from Indonesia, the world's largest tin exporter.
Exports have been declining since 2012 and they were down by
another 15 percent over the first 10 months of this year.
The less obvious reason is the resulting depletion of the
tin industry's own working stocks.
The Tin producers association ITRI, for example, estimates
that pipeline stocks held by users have fallen by around a
third, or more than 10,000 tonnes, to 21,000 tonnes over the
last five years.
LOCKED IN CHINA
There is tin in China, both the world's largest producer and
user of the metal.
As of last Friday there were 1,907 tonnes sitting in
warehouses registered with the Shanghai Futures Exchange (ShFE).
There is probably significantly more lying in statistical
darkness beyond the ShFE system.
But it is effectively trapped in China by the country's 10
percent export duty. Indeed, the country has tended to be a net
importer of refined tin, whilst being an exporter of tin
China's call on refined tin from the rest of the world has
diminished significantly over the last few years, net imports
sliding from more than 20,000 tonnes in 2011-2012 to under
10,000 tonnes last year. Net imports this year are on course to
This has alleviated the supply pressure in the rest of the
And it is down to China's ability to offset its own mine
production challenges with imports of tin ore from neighbouring
Myanmar. These have ballooned since 2013, when the Man Maw
mining district first started cranking up tin production.
It's still in full swing, evidenced by the continued flow of
material across the border, up 83 percent at 384,000 tonnes
(bulk weight) in the first 10 months of this year.
How sustainable is the current level of production in
Myanmar is one of the great unknowns in the tin market. ITRI's
view is that production may already have peaked as the
easily-accessible reserves are mined out.
Now there are sustainability questions of a different kind.
ANOTHER SUPPLY CHAIN RISK
Most tin market participants were aware that the Man Maw
mines operate in part of Myanmar controlled by the United Wa
State Army (UWSA), which has carved out a semi-autonomous state
within a state.
Less well known is the fact that the United States has
sanctions in place against the UWSA since 2003 due to alleged
That raises all sorts of uncomfortable questions for U.S.
end-users such as Apple, General Electric and Starbucks, who
source their tin products from China, particularly if those
products use metal from Yunnan Tin, which has been the main
buyer of Myanmar ore.
In practice, it's unlikely to lead to immediate enforcement
action by the U.S. authorities given how embedded Myanmar tin is
in the global supply chain.
A user of, say, Chinese tin solder is unlikely to be
punished for not knowing that its supplier was sourcing its
refined tin from Yunnan, which in turn was blending
locally-mined ore with that from Myanmar.
It's not as if the Wa State is classified as a conflict zone
in the same way as the Democratic Republic of Congo, where
bodies such as ITRI have pioneered the tracking of minerals such
as tin to ensure that what comes out does not originate from
mines controlled by armed insurgents.
That said, however, now that the Myanmar ore has been
tracked down the full length of the tin supply chain, it's
probably only a matter of time before a company such as Apple
looks for another source of tin.
The only problem is that it's going to struggle to find one.
The LME backwardation should be acting as a magnet to
attract metal to rebuild depleted stocks. It's starting to look
as if there is very little metal to be attracted.
(Editing by David Evans)