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Tin and nickel have been in a battle for the highest priced non-precious metals traded on the LME. Currently the price of tin on the LME is $23,450 per tonne, while nickel is priced at $21,645 per tonne. Comparing the supply and demand fundamentals of the two markets is essential.
By Michael Montgomery—Exclusive to Tin Investing News
Nickel supply and demand
The demand for nickel over the summer month, which is a slow period for stainless steel production, was exacerbated by weak consumer demand for the metal and hence many plants cut their output of stainless steel. The world’s largest producer of stainless steel Acerinox, cut output to 65 percent of normal rates due to weak demand. With 60 percent of nickel’s demand coming from the stainless steel producers, a small dent in production severely affects the market.
Chinese demand was subdued by two factors. Firstly, the increasing use of nickel pig-iron as a substitute for pure nickel in stainless production curtailed the demand level for the metal. The other factor was production cuts due to a well-publicized electricity shortage.
On the supply side nickel is also suffering from a surplus in the market that is expected for the course of 2012-13. Many producers are thought to be holding off restocking until the price declines further. “[T]he recent weakening of nickel prices in what is actually still a tight market in 2011 may in part reflect the expectation of weaker prices to come,” stated Allan Trench, for Mining News Premium.
The creation of a global surplus of nickel is already happening according to Norilsk Nickel CEO, Vladimir Strzhalkovsky, “If in the past year to year-and-a-half they [nickel stocks] were declining, that has now stopped… And, they have started to increase by a tiny, barely noticeable amount. It is about 1-3 percent in the past month and a half.”
Analysts are mixed in their predictions on the total size of the surplus that is to come. They range from a 60,000 tonne surplus as Bank of America Merrill Lynch has forecast, up to 75,000 tonnes that Allan Trench predicts. One factor that could stop the bleeding is the production costs of nickel which average $17-18,000 per tonne. If prices, which are currently $21,645 per tonne on the LME, move much lower, many miners may be forced to halt production.
Tin supply and demand
In stark contrast to Nickel, the fundamentals of the tin market weigh heavily on higher prices in the coming year. On the demand side, the lower price of tin, down from the $29,000 per tonne high of April, has created strong demand from China.
“Evidence of an improvement in Chinese demand for the metal came from customs data showing that tin and alloy imports surged by 84.1 percent month-on-month to 1,578 tonnes in June, the highest levels since August 2010,” according to Harprett Bhal, for Reuters.
Chinese consumption of tin in 2010 totaled 153,000 tonnes, and is expected to grow to 160,000 tonnes in 2011, improving to 168,000 in 2012. Barclays Capital stated that the Chinese market is fully destocked, and in a deficit. This position should make China a net importer of tin.
On the supply side, no new large scale projects are expected to come online before 2013, adding to an already tight market. Tin exports from Indonesia have fallen 8 percent over July levels, while crackdowns on illegal mining and stricter exportation rules are all going to add tightness on the supply side. Analysts are expecting a deficit of 15,000-20,000 tonnes this year and is expected to continue through 2012.
The uncertainty factor for both metals is the state of the global economy. The demand levels for both metals could be severely curtailed if the economy slows. However the supply side factors remain. Tin is set to outperform nickel in the coming year as far as the fundamentals are concerned. The upside for nickel lies in improving demand as the price moves lower. While tin conversely should rise as tight supplies and growing demand push up the price.