The collapse in LME tin prices at the end of last week to a temporary low of some $13,600/t on Friday morning was the culmination of a downward trend that set in from the middle of last year. Eventually the price spiralled downward as market sentiment became very bearish and panic set in. However the market bounced back – initially helped by arbitrage buying from China and announcements of a sales halt and production cuts in Indonesia – and has returned to the mid $15,000s. It is impossible to forecast prices with any degree of confidence at the moment, but some of the key market indicators to watch over the coming weeks are noted here.
There have been three main reasons for the downward trend in prices over the last 10 months: (1) the strength of the US dollar has resulted in a general weakness in commodity prices and a downward trend in a relatively illiquid market like tin encourages a circle of technical fund selling, further price falls and more fund selling; (2) the China market remains over-supplied, mainly due to the continuing glut of relatively cheap ore and concentrate coming over the border from Myanmar; and (3) the market is very sceptical about Indonesian plans to restrict exports. There has been lots of talk since the end of last year, but, until last Friday, little sign of action. Preliminary data for the first quarter of 2015 shows a 20% year-on-year increase in sales. However the main producers have now committed to halting sales at prices below $17,000/t and announced immediate plant closures or production cuts.
The consensus view from traders and analysts is that there has to be some hard evidence that tin supply is being reduced to underpin a continuing recovery in prices. The two daily statistics that may provide immediate evidence of this are ICDX sales volumes – which should stay at or close to zero – and a decline in LME stocks. LME warrant holdings have already declined by around 3,000 tonnes since the start of the year. The other closely watched statistic will be monthly Chinese ore imports from Myanmar. March figures released yesterday show that the volumes are still large (at over 16,000t gross weight) but the tonnage has declined gradually in each of the last four months. If these measures continue to look positive then the price revival of the last few days could continue as some confidence is built up. A quick return to $20,000+ however seems unlikely, as a rapid rise in LME prices is likely to run into Chinese selling and a rolling back of Indonesian supply cuts. It might take until the fourth quarter for a sustained revival to be possible.
