The global financial crisis and its impact on metals prices has been shocking and there is still a feeling that there is worse to come. With thousands of metals executives heading for London and the LME Dinner next week, there will be much to discuss. One metals website today previews the occasion with the headline “Unease and panic to taint LME week amid financial chaos”. It doesn’t sound like fun.
The puncturing of the commodity market bubble has seen tin prices drop by over $10,000/tonne or 40% from the $25,500/tonne peak touched in May. However as far as the tin market outlook is concerned, two heavyweight analyst reports that have just been released and comments from a leading fund manager suggest that the further downside for prices is now limited and that supply constraints could underpin a recovery in 2009.
The “Metals Magnifier” report published by Barclays Capital on Monday had this to say: “While tin prices are unlikely to rally amid the wider macro-economic gloom that has enveloped the base metals complex, in contrast to the rest of the complex, we believe tin prices have limited downside from current levels. The tin supply side continues to be problematic with lower supply from China and Indonesia as well as smaller-scale disruptions in Bolivia and the Congo. We expect the tin market to post a 14Kt deficit in 2008. We expect the market to remain in deficit in 2009 and our 2009 annual average price forecast is $17,000/t.”
The RBS “Commodity Companion” report published today takes a similar view: “Tin stands out as a market that is still tightening due to its particular array of supply constraints. With Indonesian output likely to remain restrained and limited potential elsewhere, we expect another deficit next year. …..we doubt prices will fall below US$15,000/t for any great length of time over the coming year, and they could move up closer to US$20,000/t as LME stocks continue to trend down towards critically low levels.” RBS forecasts an annual average LME price of $17,500/tonne next year.
The idea of a price revival after the current severe correction was also raised in a Reuters interview with a senior fund manager: "Long-to-medium term we like copper and tin, although copper probably has got a pretty long way to go on the downside," said Jeremy Weir, chief executive of Galena Asset Management, a subsidiary of the privately-owned Trafigura Group on Monday. "Over the next three to six months base metals will still underperform … but moving into the middle of next year I would expect a reasonable recovery to start." Swiss-based Galena Asset Management manages $750 million across three resource funds and year-to-date its metals fund is up by 8 percent. "The long-term bull market story is very much intact but what we are seeing is a significant correction in financial markets," Weir said.
