2012 was a good year for tin, with prices rising about 24 percent, according to data from Metal-Pages. Tin for three-month delivery is now trading around US$24,850 per metric ton on the London Metal Exchange (LME), up over 6 percent since the calendar flipped to 2013.
Fifty-two percent of the world’s annual tin production is used in solder, as per information sourced from the LME. Other major applications include chemicals (15 percent of yearly output) and tin plate (17 percent).
Demand for the metal outstripped supply last year, and that situation looks set to continue in 2013, according to Edward Meir, senior commodities analyst with INTL FCStone (NASDAQ:INTL). “We’ve been friendly to tin for a while now,” he said in a January 15 phone interview. “Both supply and demand look positive moving forward.”
Tin was last in surplus in 2008, largely due to a slump in demand caused by the global recession, a Metal Bulletin Research article notes. Tin deficits could narrow somewhat this year, but seem likely to persist over the longer term, according to Meir. “For 2013, we’re expecting a 4,000-metric-ton deficit for tin after an 8,000-metric-ton deficit in 2012. There are lots of new tin projects, but they’re small and scattered, with some in England, some in Australia and others in Latin America. They still need many more years of development.”
“Right now, there is about two to three weeks of tin inventory, which is nothing,” he added. “By comparison, there is currently about six months of aluminum in stock.” INTL FCStone, along with Barclays (NYSE:BCS) and SoGen, is calling for inventories to remain between 2.1 and 2.9 weeks of global consumption this year, while another financial-services firm, CPM Group, forecasts negative 0.7 weeks, according to a recent Kitco News article.
Indonesia is a wildcard
Another factor affecting tin supply is the fact that Indonesia accounts for a large portion of global production. Last summer, the country closed about 70 percent of the smelter capacity in Bangka-Belitung province, its main tin-producing region, after prices slipped as low as $18,740, according to Bloomberg. The move helped spur a rebound in the second half of the year.
Indonesia’s large slice of global exports — about 40 percent — makes it the “Saudi Arabia of tin,” said Meir. “The fact that we have most of our eggs in one basket is another element of tin’s bullish supply profile,” he added. “Moreover, Indonesia is often dealing with earthquakes, monsoons, flooding and other problems that can hinder mining.”
Another factor that sometimes slows Indonesia’s output is government policy, which changes frequently and often with little notice. For example, Indonesia has banned exports of raw minerals, including tin, in the past and plans to do so again in 2014. The country has also heavily taxed mineral exports in order to extract more value from its resources and encourage miners to process them inside the country.
Broad range of consumers adds to tin’s appeal
On the demand side, Meir likes the fact that tin isn’t overly reliant on one industry. “Tin certainly benefits from rising electronics demand,” he said. “But tin has a wide range of other uses as well, such as industrial chemicals and plating. That helps support prices even if one of these markets is struggling.”
For 2013, Meir is calling for a trading range of $20,000 to $28,000 for tin, with an average price of around $23,500.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.