(Repeats with no changes. The opinions expressed here are those of the author, a columnist for Reuters)
* Graphic - tmsnrt.rs/2dsShue
By Andy Home
LONDON, Sept 28 (Reuters) - Stocks of tin held in London Metal Exchange (LME) warehouses fell by another 80 tonnes yesterday.
Headline inventory of 3,460 tonnes is the lowest it’s been since 2008 and equivalent to less than four days of global usage.
Even that figure, however, flatters to deceive.
Strip out the 1,835 tonnes earmarked for load-out from LME sheds and available stock, or what the exchange terms “open tonnage”, amounts to a meagre 1,625 tonnes.
That is the lowest level since 1998, just after the exchange first started publishing the split in stocks between “open” and “cancelled” tonnage.
Inventory cover is becoming perilously thin and the resulting tensions are already simmering across the front part of the LME forward curve.
The three-month price, meanwhile, is trading just below the $20,000-per tonne mark, the highest it’s been in a year.
Unless more metal turns up in LME sheds and soon, both spreads and outright prices could be in for an explosive time.
Graphic on LME tin open tin stocks and cash-3s spread:
What is left in LME warehouses is tightly held.
One entity controls 40-50 percent of that open tonnage <0#LME:WHL> and two have cash positions in the same banding zone <0#LME:WHC>, meaning just about all the available stocks between them.
The LME’s positioning reports are backdated two days so this was the state of play at the close of Monday. It may well have changed since then.
Quite evidently, stocks are now so depleted that any sizeable position is going to show up as a “dominant long” in the LME’s jargon.
And it seems that whoever is long is trying to keep a lid on bubbling spreads.
The benchmark cash-to-three-months CMSN0-3 period ended Tuesday valued at $78 per tonne backwardation, while tom-next CMSNT-0, the shortest-dated spread in the LME system, is this morning trading in small but manageable backwardation.
By tin’s standards these are relatively benign backwardations.
This time last year the cash-3s spread flexed out to a $540 backwardation and that was with double the amount of currently available tonnage.
Keeping everyone well behaved is the long shadow cast by a ferocious and prolonged squeeze on the London tin market six years ago which caused much unhappiness, not least to the perpetrator.
But maintaining orderly spreads in this small and shrinking space is going to be increasingly difficult if stocks keep dwindling.
What’s disconcerting for London short-position holders is the conspicuous absence of arrivals despite the incentive to deliver metal generated by that cash date premium.
Total inflow so far this month has totalled a minimal 80 tonnes.
The London tin market needs more but who has the metal to deliver?
There are currently 19 producer brands of tin that qualify for LME delivery, of which all but four are Asian.
This is why all the LME stocks were designated as originating from Asian producers at the end of last month, when there were still 4,460 tonnes in the exchange’s warehousing network.
Even within the list of Asian brands, most of them, 12 in total, are either Indonesian or Chinese.
And there are constraints on supply from both countries.
In the case of Indonesia, the world’s largest exporter of the soldering metal, shipments have declined steadily over the last four years, a result both of low prices and government action against the chaotic smaller producers clustered on the tin-rich islands of Bangka and Belitung.
Falling Indonesian production has been the slow-fuse time bomb in the global tin market.
It is not just LME tin stocks that have been depleted.
Industry body ITRI estimates that pipeline stocks held by tin users has fallen by around a third, or 10,000 tonnes, over the last five years to somewhere in the region of 21,000 tonnes.
In this respect, low LME stocks are a reflection of a broader inventory drawdown that has been running quietly and largely unseen for several years.
But not necessarily in China, where producers have benefited from the flow of raw material from neighbouring Myanmar, a new and unexpected arrival on the tin production scene.
Restricting the flow of metal out of China, however, is the 10 percent export duty, which has limited exports to just 2,200 tonnes since the start of 2014.
Chinese producers have at times circumvented this tariff barrier by exporting tin products, which are not liable for the duty.
But there is no sign of any increase in such product flows this year. Indeed, at 3,000 tonnes in the first eight months they were down by three percent on the year-earlier period.
The other restraint on Chinese exports is the rise of tin trading on the Shanghai Futures Exchange.
Surging volumes and open interest have drawn more local stock into exchange warehouses. At 3,600 tonnes Shanghai exchange stocks are now larger than LME stocks, even at the headline level.
It’s an important caveat to the evolving bull story outside of China.
The current tightness across the nearby LME spreads is testing availability in the wider market.
And so far it has been found wanting.
This is in part a vindication of tin’s bull narrative of supply shortfall, first and foremost in Indonesia.
Tin is the second-strongest performer on the LME so far this year with outright price gains of 38 percent.
Only zinc has fared better, while even nickel is in a distant third place despite all the excitement about Philippine mine closures.
But in equal part this is a reflection of a fracturing trading landscape with liquidity, including stocks liquidity, split between the London and Shanghai markets.
The combination of structural supply shortfall outside of China and structural changes in the way the soldering metal is traded and priced is not a happy one for short-position holders in London.
The low-liquidity London tin market has always been a dangerous place for the unwary. It is shaping up to be even more so in the coming period.
Editing by David Evans