Tin may make a smart comeback

Demand continues to be robust and there is no indication of a fall in consumption

Metal prices are in a meltdown globally and tin is no exception. Tin has been the worst performer among metals, falling 20 per cent so far this year. The metal now trades near a seven-year low of about $16,000 a tonne — lower than its production cost.

After touching a low of under $16,000 due to increased export from Myanmar to China, prices stabilised, thanks to the drastic output cuts announced recently by Indonesia, a major tin producer. What’s more, after a bleak performance in the last few years, analysts expect a turnaround aided by reduction in supply, and robust demand from the electronics industry in the coming years.

Demand shift

One reason for the optimism on tin prices is the growth in the consumer electronics industry. Thanks to its lower melting point and ability to mix with other metals, tin is ideally suited for use in soldering. Tin has replaced lead, considered toxic, for soldering electronic components in products such as smartphones and various white goods. Around 50 per cent of tin usage globally is as solder and this is a structural shift from the past when the food packaging industry was the main consumer of tin for plating iron sheets.

The demand for electronics continues to grow but the size of electronic devices continues to shrink. As a result, demand for tin may not change appreciably. Tin, being non-toxic and corrosion resistant, is valued by manufacturers. However, other alternatives such as aluminium have become available too, diminishing the need for tin.

Data from Bloomberg shows that global tin demand remained strong in 2014 at 3,81,000 tonnes. Demand has averaged 3,50,000 tonnes in the past 10 years and for 2015 it is estimated to remain at or above last year’s levels.

Supply issues

Unlike the demand side, changes on the supply front have a bigger bearing on prices. This is because prices were depressed even though demand was robust, due to increase in refined tin production. But the 50 per cent production cuts recently announced by Indonesia may move the metal to deficit, aiding prices. Another factor that could reduce supply is issues in mining the ore. It is predicted that the ore grade at the top two ore producers — Indonesia and China — is declining. This would reduce output and increase production costs due to the need for more advanced mining solutions.

One other factor in favour of tin prices is that China, which is a main consumer accounting for 40 per cent of tin consumption, is also the top metal producer. Reductions in Chinese tin production from 1,00,000 tonnes annually currently would help prices.

India story

India has very limited tin reserves and meets its needs primarily through imports. Chhattisgarh, with 32 million tonnes of reserves, (around 38 per cent of the country’s total reserves), is the only tin producing state, according to the Indian Bureau of Mines. The annual output is quite low — 10 tonnes compared with the average demand of 5,000 tonnes a year.

The country’s economic slowdown, coupled with lower tin prices, led to a steep fall in the value of tin imports in 2014. Imports decreased to $127 million in 2014, from nearly double that amount in 2013, according to data from the Ministry of Commerce and Industry.

Price outlook

Analysts had predicted a revival in tin prices in 2013 and 2014 but the reality turned out otherwise. This year, however, prices may, in all likelihood, go up.

Three reasons for this: One, with prices at seven-year lows, many miners are shuttering output as the sale price is below production costs.

Second, demand continues to be robust and there is no indication of fall in consumption.

Third, inventory levels are already sliding. After touching a high of over 12,000 tonnes in December 2014, inventory levels at the London Metal Exchange have fallen to 9,000 tonnes currently.

Capital Economics predicts that tin prices will hit $24,000 a tonne by late 2016. While this may be too optimistic, prices near the 2014 levels — around $20,000 — appear more likely.

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