LONDON (Reuters) - The last few days have brought a couple of “official corrections”, to coin news agency jargon, about the tin market.
The first came from the Indonesian trade ministry, which revised down its estimate of tin exports in June to 7,016 tonnes from 12,377 tonnes. A ministry official said there had been a miscalculation.
Doesn’t sound like earth-shattering stuff, and in most markets it would amount to little more than a rounding error.
But in the tiny tin market 5,000 tonnes counts for a lot of metal, enough to tip the statistical scales between supply deficit and supply surplus.
Industry body ITRI, for example, is forecasting a 10,000 tonne deficit this year.
Or was. Because the second “official correction” came from Peter Kettle, markets manager at ITRI. Speaking in the Reuters Global Base Metals Forum earlier this week, he conceded that the forecast deficit is unlikely to appear this year.
So one correction indicated less supply than expected, and the second suggested it was not needed anyway. It’s a conundrum. But then this market has form when it comes to wrong-footing analysts.
Because it’s not the first time that an expected deficit has gone missing in the tin market. Indeed, for a metal faced with chronic supply problems, it’s curious just how elusive is any tangible sign of scarcity.
In truth, Kettle was merely confirming what has become increasingly obvious.
Stocks of tin registered with the London Metal Exchange (LME) have been creeping steadily higher over the last couple of months. At 13,235 tonnes, they are now up by 3,575 tonnes, or 37 percent, on the start of the year.
The absence of any sign of stocks stress has deflated bull spirits. LME three-month metal has done little more than tread water in a range of $22,000 to $23,000 per tonne since early June.
So where has the elusive deficit gone?
The answer comes in two parts, according to ITRI.
On the demand side of the equation, which largely means soldering in the electronics industry, an already low-speed growth rate shows every sign of decelerating to just 2 percent this year.
Production, meanwhile, is proving more resilient than most expected. Since the tin supply landscape is still bereft of any new mines, this really comes down to the world’s two largest producers, Indonesia and China.
Which brings us back to that first “official correction” from the Indonesian trade ministry.
A June surge in exports, as suggested by the original assessment, might have helped explain why LME stocks have been rising.
But it was clear even at the time that something was wrong with the data. Since August last year, every tonne of tin ingot that leaves the country is supposed to be traded on the local Indonesian Commodity and Derivatives Exchange (ICDX).
Analysts have been tracking turnover on the ICDX as a proxy for exports. Yet total volumes across the five listed tin contracts totaled just 4,615 tonnes in June, according to Thomson Reuters data.
Whichever way the figures were tweaked, it was impossible to reconcile ICDX turnover with the official assessment that 11,252 tonnes of tin ingot had been exported that month.
The subsequent revision brings the two closer into line, although there is still a cumulative gap of almost 10,000 tonnes in favor of exports since the new export regime came into force last year.
Take a step back from the minutiae of the Indonesian export counting system, however, and the broader picture is one of declining shipments from the country. Cumulative exports in the first seven months of this year of 49,118 tonnes are still down by over 12,000 tonnes, or 20 percent, on last year.
The figure is elastic, given the lack of transparency into how exactly the ministry calculates or miscalculates exports, but the trend is not.
The world’s largest supplier of tin to the international market is definitely shipping less this year than last year.
China is the other key part of the tin jigsaw. The largest producer in the world is facing the same problems of declining mine grades and rising costs experienced by many other operators in the tin market.
It has therefore been a consistent net importer since 2007, both of refined metal and of lower-grade material, which is then substituted for raw material in smelters.
But imports have shrunk dramatically since around the middle of last year. Net imports slumped from 30,000 tonnes in 2012 to 11,000 tonnes in 2013, with the downtrend continuing this year. At 4,255 tonnes, net imports in the first seven months of 2014 have almost halved from year-ago levels.
It’s a long destocking cycle, if that is what it is. Alternatively, Chinese smelters may just have tapped into a new source of raw materials.
A stand-out in the recent trade figures has been a relatively new flow of material from Myanmar, 92,000 tonnes of it so far this year.
Other than the Chinese buyers, no-one really knows where this is coming from. Maybe a new mine. Maybe older workings. All that is certain is that this is low-grade material with an average value of just $1,857 per tonne in July, according to China’s customs department.
It may explain, albeit only partly, why refined tin production in China surged by 17 percent to 101,600 tonnes in the six months to end-July, according to official government figures.
As with the Indonesian export figures, there’s plenty of room for error in the official Chinese production figures, but the trend is more certain.
And as ever with China, there is a nagging suspicion that metal may be seeping out of the country in a form that simply doesn’t make it onto the official customs figures.
Standing out from the statistical shadows in both China and Indonesia is the hard data generated by the LME. And both stocks and price suggest that this market is balanced or in small surplus.
Tangible deficit will come at some time. Of that everyone is certain. A dearth of new tin mines remains the defining characteristic of the global tin supply chain, notwithstanding the mysterious Myanmar material entering China.
And even if the handful of current projects are to move beyond the drawing-board, they will, according to ITRI, require an incentive price of around $25,000 per tonne.
The bulls, in other words, may yet have their day. Just not today.
editing by Jane Baird