Tin ticks all the commodity supercycle boxes

LONDON: Tin remains the superstar of the London Metal Exchange (LME) industrial metals pack.

At $37,350 a tonne LME three-month tin is up 77% since the start of the year, far outstripping aluminium, which is the second-strongest performer with a gain of “only” 26%. The London tin market has been characterised by extreme supply tightness since February. The premium for cash metal closed last week at $1,050 a tonne, a level that was unprecedented until this year.

LME stocks total only 720 tonnes, having failed to rebuild despite the huge incentive for physical delivery. Shanghai Futures Exchange inventory is down to 1,256 tonnes and between them the two terminal markets hold enough tin to cover a minimal two days of global demand.

There have been a couple of flash crashes in recent months and there could be more. But even if blown 20% off course by a tsunami of selling, tin would still be priced close to pre-2021 historical highs.

If a supercycle means a permanent shift higher in pricing, then tin ticks the right boxes.

REPRICING TIN

LME tin is expected to average $30,580 a tonne next year, according to the 16 analysts who participated in the most recent Reuters base metals poll.

The lowest forecast was $25,250, significantly above the most bullish forecast of $22,000 made in the January poll, which generated a mean expectation for prices to average $19,800 a tonne in 2022.

It’s clear there has been a fundamental rethink about tin’s long-term pricing environment.

Fitch Solutions is just one of many to make upward revisions to price expectations. It has just lifted its 2022 forecast from $26,000 to $32,500 a tonne.

Fitch analysts expect “the tin market’s fundamentals to ease slightly going into 2022, driven by supply increases” but “to remain on a firm uptrend in the coming decade” with an average price of $35,500 by 2030.

SUPPLY INCENTIVE

The common theme behind these elevated forecasts is that tin needs a period of sustained higher pricing to provide the incentive to boost supply.

The global supply chain, which is dominated by a handful of producers, has been profoundly shaken by COVID-19 and some sort of normalisation is expected over the coming months.

Malaysia’s MSC is hoping to restore capacity after a series of furnace failures and lockdown measures while China’s producers appear to have largely escaped the country’s latest energy crunch. Chinese tin production rose by 2.8% month on month in October and cumulative output was up by 15.1% over the first 10 months of the year.

China has flipped to being a net exporter of refined tin this year to the tune of 9,800 tonnes. Shipments of 1,107 tonnes in September included 291 tonnes to the Netherlands, 225 tonnes to Italy and 40 tonnes to Romania, attesting to the gaps that have opened up in the European physical supply chain.