(Repeats with no changes. The opinions expressed here are those
of the author, a columnist for Reuters)
By Andy Home
LONDON, March 6 Industrial metals are buzzing
The London Metal Exchange (LME) index of base metals has
risen from a trough of 2,049.00 in January 2016 to a current
Fears of a global, particularly Chinese, slowdown have been
largely been assuaged over the intervening year. Attention is
once more focusing on supply constraints across the industrial
Only one metal has been left behind.
Tin, currently trading at $19,330 per tonne in
London, is down 7.8 percent on the start of January. It is the
only LME-traded metal to be in negative territory.
What little fund money is committed to one of the LME's
least liquid markets has flown. The money manager net long
position has halved to a one-year low of 1,173 contracts since
the start of the year.
In Shanghai, where the price has arguably held up
better, market open interest has slid from over 24,000 lots to
just 13,400 over the same time-frame.
Why has tiny tin fallen so out of favour?
Graphic on LME tin price and stocks:
STOCKS UP (RELATIVELY), PRICE DOWN
Tin's relative under-performance has coincided with the
dissipation of an aggressive cash squeeze in London that lasted
most of the fourth quarter of 2016.
The LME's benchmark cash-to-three-months spread CMSN0-3
spent most of that period in backwardation, the cash premium
flexing out to $270 per tonne at one stage in November.
That spread ended Friday valued at a contango of $39 per
LME headline stocks have rebuilt from under 3,000 tonnes in
November to a current 5,415 tonnes. Open tonnage, which is the
metal available for contract settlement, has recovered from a
desperately low 1,125 tonnes to 4,065 tonnes.
But this recovery in stocks liquidity is highly relative.
Two years ago LME stocks totalled over 10,000 tonnes.
Moreover, after peaking at 5,995 tonnes in mid-February, the
headline figure is falling again.
The LME contract remains a very tight space. One entity
controls 30-40 percent of available tonnage and another 40-50
percent, according to the exchange's latest dominant positions
It's a moot point as to how long the easier tone in
time-spreads is going to last.
Graphic on Indonesian exports 2009-2016:
INDONESIAN EXPORTS UP (RELATIVELY)
This relative rebuild in LME stocks has taken place against
a backdrop of higher exports from Indonesia, the world's largest
Exports jumped 180 percent year-on-year to 6,964 tonnes in
January, although that dramatic percentage change is down to a
low base last year, when Indonesian tin production was hit by
the double-whammy of flooding and another turn of the licensing
screws by the government.
Exports over the last three reported months have been
running strongly at an annualised 71,000 tonnes, which seems to
reflect a robust production performance by PT Timah, the
country's largest producer, in the closing months of 2016.
However, the long-term trend is still falling.
Cumulative exports last year were 63,560 tonnes, down 9.4
percent on 2015. It was the fourth consecutive year of decline.
PT Timah is aiming to lift production to 30,000 tonnes this
year from 24,000 tonnes last year but it will do so in part by
buying in more ore, potentially translating into lower output
among Indonesia's independent producers.
Tin producers body ITRI said it expects "officially reported
Indonesian refined shipments this year to remain broadly level
with 2016", albeit with "significant uncertainty" around that
CHINESE WILD CARD
Set against the longer-term downtrends in both LME stocks
and Indonesian shipments, tin's fall from grace looks anomalous.
There is one other key factor to consider, however.
China is the world's largest producer, but it has
historically not exported much metal because of a 10 percent
export duty that has been in place since 2008.
That duty has been dropped this year, opening up the
potential for greater arbitrage flow of tin out of the country.
There were no exports of refined tin at all in January but
that's probably down to the lack of any official announcement by
the Chinese authorities. It's taken several weeks for even local
producers to confirm that the duty has really gone.
ITRI has in the past suggested there might be significant
stocks in China, although how significant is anyone's guess.
And it's not as if Chinese producers are immune from the ore
depletion that has affected just about every other producer
around the world.
Two out of the four biggest producers in the country
reported lower production last year, according to ITRI.
Chinese operators have come to rely increasingly on imports
of raw material from neighbouring Myanmar to compensate for
falling domestic mine production.
Superficially the flow of ore across the border continues to
boom, up 63 percent last year.
But, according to ITRI, analysing January's cross-border
trade, "the presence of high-grade ore in shipments has
reportedly been sparce and we have lowered our estimate of
average tin content (...) to 15 percent tin."
Even Myanmar, it seems, is struggling with grade depletion.
WATCH OUT FOR CHINESE EXPORTS
Tin's usage profile, concentrated as it is on soldering, is
not the most exciting.
ITRI was expecting usage growth of just one percent last
year, but relative to the new-found optimism pervading the rest
of the industrials metal pack, tin's under-performance so far
this year still looks slightly strange.
There are still structural supply problems in this market.
Six out of 10 of the world's largest tin producers saw output
drop last year, according to ITRI.
Most established producers are struggling to maintain, let
alone increase, production.
Myanmar has provided a lifeline to China's producers but it
too is showing signs of the falling mine grades that are the
root of challenged supply.
With LME stocks still historically low and once again
sliding, the only readily identifiable reason for tin's fall in
price this year is the potential threat of more exports from
That country's trade figures are going to warrant close
scrutiny over the coming weeks and months.
(Editing by David Evans)