LONDON (Reuters) - Tin has been spared the volatility afflicting the rest of the industrial metals over the past month.
The London contract is too illiquid to attract the attention of many of the speculative players who have been hammering the likes of copper as a proxy for their negative view on global manufacturing growth.
But tin hasn’t been spared completely. The London Metal Exchange (LME) three-month price sank to a two-year low of $18,300 a ton in August and is still hovering close to that level at $18,900.
Tin has been the weakest performer in the LME base metals pack for some time. It is down more than 10 percent since the start of 2017. Copper, by contrast, is still up 10 percent despite all the recent fund selling.
Steady supply has kept the market under pressure over that time frame. The danger now is that a deteriorating demand outlook will increase that pressure.
Graphic on LME tin price performance and spreads:
Global usage of refined tin came in at 362,500 tonnes in 2017, representing year-on-year growth of about 4 percent, according to the International Tin Association (ITA).
Its findings are based on an annual survey of 109 companies representing about 38 percent of world usage.
It was a good year for demand by tin’s recent standards and in comparison with other metals. But this year is shaping up very differently, with the ITA forecasting a sharp slowdown in demand growth to only 1 percent.
Core to that expected slowdown is China, where the impact of tariffs will accentuate existing demand challenges.
Almost half of the world’s tin is used in soldering across a wide spectrum of electronic applications, many of which will be buffeted by the escalating tit-for-tat tariffs being imposed by the United States and China.
Tariffs overlay the structural challenge arising from miniaturization of electronic components, which means that an ever-decreasing amount of metal is being used to achieve the same performance.
ITA figures show that chemical applications represent the second-largest component of global tin demand, accounting for 18 percent last year.
After growth of 7.5 percent last year, tin usage in the chemicals sector “is expected to slow significantly in 2018”, the ITA says.
Here, too, the chilling effect of tariffs will affect a sector that has already been hit hard by China’s rolling environmental clampdown on polluting industries.
Tinplate, the third largest component of tin usage, “continues to remain static or in decline”, the ITA says, with U.S. tariffs on steel adding to structural headwinds.
There are bright spots on the horizon, such as the potential for tinplate packaging to benefit from the environmental pressures on plastics. But right now the sense is of usage growth braking sharply as tariffs compound existing longer-term weaknesses in tin’s usage profile.
What’s worrying for the tin market is that even with last year’s relatively robust growth in demand, the price has remained largely static.
That’s because tin supply has proved remarkably resilient by this market’s standards.
The flow of tin from Indonesia, the world’s largest exporter, suffered some interruption at the start of the year as the country’s authorities implemented yet another tweak to the rules for overseas shipments.
Yet shipments have since bounced back and at 54,000 tonnes in the first eight months of this year, they were up by 12 percent on 2017 levels.
Exports last year rose by 23 percent, halting a five-year downtrend. This year’s exports are shaping up to be even better.
Chinese smelters, meanwhile, are still feeding on the flow of raw material crossing the border from Myanmar.
Myanmar emerged as a major new source of tin around 2013, when significant tonnages of mine concentrate first started being imported by China.
The sustainability of the tin mines in Myanmar’s Wa region has been the question of much debate in the tin market, with suggestions that reserves are being depleted rapidly.
The ITA — which has been collecting its own information on tin trade between the two countries in the absence since March of detailed figures from China’s customs department — estimates that shipments totaled 34,000 tonnes of contained metal for January-July, down 5 percent year on year.
The association is forecasting tin output in Myanmar to drop to 54,000 tonnes this year, from 67,000 tonnes in 2017, but warns that “past production forecasts, including our own, have consistently underestimated the production potential of the Wa region”.
Certainly, there is no indication of any tin supply shortage in China itself.
Imports of refined metal dropped sharply last year and the country shifted to net exporter in the first quarter of this year, the last period for which detailed trade figures are available.
Visible inventory in the form of stocks registered with the Shanghai Futures Exchange has risen by 1,819 tonnes so far this year to 6,734 tonnes.
LME stocks have risen by a more modest 450 tonnes to 2,685 tonnes.
Time-spreads are relaxed, the benchmark cash-to-three-months period even slipping into contango last month for the first time in more than a year. It ended Wednesday valued at a backwardation of $45 a ton.
Backwardation is normally a sign of supply tension in commodity markets, but it has been the norm in the LME tin market for much of the past three years, again reflecting the contract’s relatively low liquidity.
Backwardation of $45 might sound tight, but relative to backwardation in excess of $300 as recently as April, it’s as relaxed as the tin spreads have been for some time.
The outright price, meanwhile, remains vulnerable unless it can move away from last month’s lows.
Some of the other base metals, such as zinc and copper, have staged mini recoveries this week as traders weigh the future negative impact of tariffs against the current strength of fundamentals.
Unfortunately for tin, the current fundamentals are not exactly bullish, leaving the market exposed to any further escalation in trade tensions.
Editing by David Goodman