(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, Sep 16 The London tin market is becoming
increasingly prone to spread tightness.
At one stage last week the London Metal Exchange (LME) cash
price flared out to a $250-per tonne premium over the
It was the third time in a year the front part of the LME
curve has contracted sharply and there may be more to come.
LME inventory holds the key and right now it looks very
depleted. Open tonnage, that which is available for the
settlement of positions, touched a 12-year low of 2,705 tonnes
earlier this month.
It has recovered to a current 2,985 tonnes, albeit through
movement of previously cancelled tonnage back into the open
tonnage category rather than through fresh arrivals of metal.
Low stocks can be seen in part as a sign of genuine supply
pressures, particularly in Indonesia. Tin is the second best
performer among the LME base metals pack this year, eclipsed
only by zinc, another metal with an enticing bull narrative of
But there is also a sense that low LME stocks are a sign of
a changing tin trading landscape, one in which the London
exchange is shrinking even while the upstart Shanghai contract
Graphic on LME Tin stocks, spreads and 3-month price:
SQUEEZED IN A SHRINKING ROOM
Providing the backdrop to last week's spreads spasm was a
dominant long position holder.
It is still there, holding 50-80 percent of available stocks
and cash positions as of the close of business Wednesday.
But given stocks are so low, that could translate into a
position of just 1,500 tonnes at the lower end of that spectrum.
Hardly the stuff of world domination, but enough to dominate
the London tin market.
Last week's flare-out in the cash premium should in theory
have enticed more metal into LME sheds. So far none has shown
Until it does, the small room that is the London tin market
will feel ever more constricted.
The LME's market positioning reports <0#LME-FBR> show both
significant long and short position holders liberally sprinkled
over the next three main monthly prompt dates, Sep. 21, Oct. 19
and Nov. 16.
On the first of those, which under the LME's two-day prompt
system will trade out on Monday, six shorts are jostling against
five longs. In November nine shorts are facing off against four
That doesn't mean that all or indeed any of these positions
will be physically settled but everyone will have to step very
carefully if another spread spasm is going to be avoided.
Low LME stocks are in part a manifestation of real-world
Indonesia is the largest supplier of the soldering metal to
the rest of the world and its exports are on track to decline
for the fourth consecutive year.
At a cumulative 38,343 tonnes over the January-August period
they are down 16 percent on last year and look on track to meet
tin industry body ITRI's full-year forecast of 60,000-65,000
As recently as 2012 Indonesia's exports were close to
In the interim, repeated government crackdowns on the
independent producers clustered on the islands of Bangka and
Belitung, natural attrition of easily accessible resources and
last year's low price environment have combined to deal a heavy
blow to the country's operators.
Indonesia's own energy and resources ministry reported in
May that only 29 out of 47 audited smelters were still
operational, according to ITRI.
Long-term decline in the world's largest exporter is the
core driver of tin's bull.
Some short-term spice has been added by the closure of
several big Chinese smelters for environmental audits and
However, this has not translated into any noticeable
acceleration in net imports, which at 4,000 tonnes in the first
seven months of this year were down by 26 percent on last year.
If Chinese smelter outages are having an impact, it is
evidently a drama playing out within the domestic not the
Indeed, the effect may simply be to help draw down local
stocks which have accumulated thanks to the raw materials boost
to China's smelters from the tin mining boom taking place just
over the border in Myanmar.
Myanmar's emergence as a major supplier is the bearish
spectre hovering over tin's bull story of chronic supply
But when it comes to tin, what's made in China still largely
stays in China thanks to a 10-percent export duty on exports of
And more of it is being drawn into warehouses registered
with the Shanghai Futures Exchange (ShFE).
The ShFe's tin contract hasn't attracted the same amount of
attention as the nickel contract, which exploded into life when
it was first launch in March last year.
Tin, which started trading at the same time, has been more
of a slow fuse affair but activity has picked up sharply this
Volumes totaled 4.47 million lots in the first eight months,
compared with 1.03 million in the March-December 2015 period.
Open interest was 14,198 lots at the end of last month, up
from 1,998 lots a year ago.
As with the ShFE's nickel offering, rising trading liquidity
has been accompanied by rising stocks liquidity.
There are currently 3,633 tonnes of tin in ShFE warehouses
and most of it, around 87 percent, is warranted.
None of this metal is going to bring any relief to short
position holders in London, where chronically low stocks risk
translating into structural spread tightness.
But those low stocks are a sign that the tin market is
While the world outside China is characterised by shortfall,
China itself seems to have ample amounts of the stuff to the
point that on current trends ShFE warehouses will soon hold more
than LME ones.
And on current trends Shanghai volumes will keep growing
while LME volumes will keep shrinking. They have been falling
every month since the start of 2015.
This shrinkage is as much part of the London market's
increasingly frequent bouts of tightness as underlying
The small room is getting smaller and it's getting
(Editing by William Hardy)