Tin prices hit highs amid low stocks, supply issues

There is no quick fix to tightness in the tin market, analysts said, with supply issues, low inventories and resurgent consumer electronics demand working in concert to hold prices high.

Less than a year ago, cash prices for tin, a relatively benign metal widely used as electronic solder in lieu of toxic lead, traded just shy of $14,000/t. But since March 2020 lows, which came amid widening pandemic-related restrictions, tin's price has been on the upswing, breaking over $29,000/t in February after surging in recent months.

"You had some supply disruptions because of COVID-19 last year, and then you also had a big demand boost for electronics and computers with work and schooling from home," Fastmarkets base metals analyst William Adams said. "That was a real boost to the demand for solder."

In the fourth quarter of 2020, Chinese exports of electronic integrated circuits and photo-sensitive semiconductors jumped about 25% year over year, according to Macquarie strategists in a Feb. 10 note. Likewise, year-over-year circuit production surged 28% in the third quarter of 2020 and 41% in the fourth quarter, according to the strategists.

"Against this backdrop, tin's price recovery broadly appears fundamentally justified and with visible ex-China inventory so thin, further gains are possible," the Macquarie strategists said.

On the London Metal Exchange, inventories have plummeted while prices have moved into backwardation, where cash prices exceed futures contracts. Adams said inventories hit a low of 775 tonnes in February on the London Metal Exchange, though they have since recovered slightly.

"Not surprisingly, with the backwardation flaring out, we have seen about 1,000 tonnes delivered into [London Metal Exchange] warehouses mainly in Malaysia so far in February," he said.

By comparison, inventories on the Shanghai Futures Exchange, another important hub for tin trading, were at about 7,400 tonnes in recent trading, Adams said. The tin stocks have so far largely stayed in country, Adams noted, though he said it will be interesting to see if an arbitrage trade emerges where some Chinese inventories shift to the London Metal Exchange.

Fears over further supply disruptions also hang over the market with political unrest in Myanmar, a top tin supplier to China, after a military coup in early February that saw the arrest of Myanmar's elected state counsellor, Aung San Suu Kyi.

"There might well be a case of people wanting to run with more tin stocks in case there is any disruption," Adams said.

So far, the coup appears not to have disrupted the Myanmar-China tin trade, though pandemic lockdowns are having an impact on tin shipments more generally, analysts said. Higher prices may also boost Myanmar production, making some previously uneconomic ore worth mining.

"We do not feel that the political unrest in Myanmar will impact much of the country's tin supply," the International Tin Association said in a Feb. 4 report. "The Wa region [in Myanmar] is relatively isolated from the political situation in the rest of the country, and we expect business to continue as usual here. Although some mines in the area remain flooded, the high tin price is allowing miners to extract lower-grade material."