LONDON, July 6 (Reuters) - A large price premium for the cash tin contract over the three-month forward on the London Metal Exchange should theoretically attract large amounts of metal to LME approved warehouses.
But that isn’t happening this time.
Asia-based traders are holding back from delivering to LME warehouses because they expect the premium to rise further, tin industry sources said.
That has intensified the problem of tumbling stocks of tin in LME warehouses, which at below 1,700 tonnes are at their lowest since 1989 and less than one percent of annual global demand which is estimated at around 350,000 tonnes this year.
Also exacerbating nearby shortages is one company holding between 50 and 79 percent of cash contracts and warrant holdings. <0#LME-WHL>
The premium or backwardation for cash tin over the three-month MSN0-3 flared out this week to $315 a tonne, its highest since Sept 2015.
“The backwardation isn’t incentivising replenishment by off-warrant stock holders,” a tin producer said. “They are waiting to see higher levels.”
Supplies are expected to rise because China, the world’s largest producer and consumer of the soldering metal, at the start of this year abolished a 10 percent tax on refined tin exports.
“Filling the void is going to take time, it won’t happen immediately,” a London-based tin trader said.
Expectations for rising global supplies were reinforced after Yunnan Tin Co Ltd, the world’s biggest tin producing company, said last month it had received government approval for so-called “processing trade”, churning out refined metal for export using imported concentrate.
Yunnan Tin is the world’s biggest producer of refined tin, with some 76,000 tonnes of output last year.
But analysts still expect supplies to fall short of consumption, which is expected to be boosted by semiconductor firms, which account for nearly half of global tin demand.
Industry body World Semiconductor Trade Statistics expects the semiconductor market to grow by more than 10 percent to $388 billion by 2018.
Editing by Jason Neely