LONDON (Reuters) - Why has tin been shut out of the base metals rally this year?
Trading on the London Metal Exchange (LME) around $19,400 per tonne, tin is down 7 percent since the start of January. The rest of the metallic pack are up by an average 20 percent.
Perhaps it’s because no one has worked out how to write tin into the hot electric-vehicle story that has galvanized the others.
Tin does, however, have its place in the green technology revolution. It is, according to tin producers association ITRI, increasing its material share in the next generation of lead-acid batteries used in hybrid vehicles.
It could be down to simple lack of interest.
Tin has always been a low-liquidity contract for LME but volumes have shrunk further over the last couple of years and open interest of 15,640 lots at the end of October was down 26 percent year-on-year.
It is now too small for many fund players to get involved. Chronically tight time spreads, in backwardation since May, don’t help either.
Tin’s inertia is all the more remarkable because it is a metal with an underlying narrative of supply deficit.
The shortfall, according to ITRI, will widen from 3,000 tonnes this year to 7,300 tonnes next year in the context of a 360,000-tonne global marketplace.
Such a fundamental picture normally excites bullish spirits but not, it seems, in this particular commodity market.
The problem is that supply deficit has been a running theme of the tin market for many years and there is still scant evidence of any supply-chain tightness, generating what might be called deficit fatigue.
Low LME stocks of 2,145 tonnes might give the appearance of physical market tightness.
But there are another 8,550 tonnes sitting in warehouses registered with the Shanghai Futures Exchange in China. True, these have been trending lower since September but are still up by 6,132 tonnes on the start of the year.
China’s falling mine production was once part of tin’s bull story.
Until one of its producers, Yunnan Tin, tapped a whole new source of tin across the Myanmar border in the Man Maw mining district.
It’s worth remembering that the wider tin market, including ITRI, didn’t even know there was a tin-mining district in Myanmar until imports of its concentrate started turning up in Chinese trade figures in 2013.
Last year that flow of raw material amounted to 472,500 tonnes, containing what ITRI estimates was 57,000 tonnes of tin.
This huge new source of feed for its smelters translated into steadily falling Chinese imports of refined tin. Net imports were almost 30,000 tonnes in 2012. Last year they were 9,300 tonnes.
They totalled just 1,500 tonnes in the first nine months of this year, and the country was a very small net exporter over the July-September period.
Myanmar blew a large hole in tin’s deficit narrative.
ITRI, the sole public source of tin production and consumption figures, can’t be blamed for not seeing it coming since no one else did either. Rather, the Myanmar Surprise underlines the difficulties in tracking a notoriously opaque and unpredictable global supply chain.
This year has sprung another little supply surprise.
Indonesia, the world’s largest exporter of tin, is on track to buck a four-year slide in shipments. Exports rose by 20 percent year-on-year to 63,200 tonnes in the first 10 months of 2017 despite government pressure on the independent production sector and a long-running decline in ore grades.
When it comes to tin, supply has a habit of performing better than forecast.
Deficit has proved to be repeatedly elusive in this particular market.
Graphic on DR Congo production of tin concentrate:
Which doesn’t mean deficit doesn’t exist, nor that it couldn’t start to manifest itself in refined metal availability.
A key factor in ITRI’s renewed deficit call is the depletion of the Myanmar deposits.
Although China’s imports are on track to exceed 50,000 tonnes again this year, more of this material is coming from processed ore stockpiles as the mine’s own production slides.
The question, though, given tin’s recent supply history, is whether there is another surprise looming.
Step forward, perhaps, the Democratic Republic of Congo.
The DRC has long been a major tin producer, albeit chaotic, where mining is still often done by hand and pits in tin-rich Kivu Province have tended to be run by army or rebel militia groups.
Official production of tin concentrates, as published by the country’s central bank, slumped from 19,000 tonnes to just 6,000 tonnes between 2012 and 2013. It hasn’t fully recovered since, with output last year at 13,200 tonnes.
The official reason for this decline was a 2012 ban on illegal mining in Kivu. The more probable reality was a transfer of mines from the official sector into the hands of the M23 rebel group, which briefly captured the provincial capital of Goma in November 2012, and its many successors.
The combination of rich tin seams and demand for tin from the DRC which isn’t tainted with the suspicion of conflict labor is attracting outside interest.
A Canadian-listed company, Alphamin, has just raised $80 million to help bring the Bisie tin mine in Kivu into production.
The mine will produce around 10,000 tonnes per year in contained metal. The target for first production is 2019.
Bisie was itself once an artisanal operation administered by a unit of the DRC army. Indeed, it was the ugly poster child for conflict minerals and played a starring role in their inclusion in the Dodds-Frank Act.
A successful rebirth as a mechanised mine with supporting infrastructure would, according to Alphamin, mean “unlocking” one of the richest tin deposits in the world and, as a result, the entire North Kivu region of the DRC.
Alphamin is a pioneer, challenging the political risk wall that has held back investment in the DRC tin sector.
It’s still a risky proposition, given the multiple challenges of working in what even by DRC standards is an anarchic province.
But if you’re suffering from tin deficit fatigue and wondering where the next supply surprise might come from, keep on eye on progress at the Bisie tin mine.
(The opinions expressed here are those of the author, a columnist for Reuters)
Editing by Dale Hudson