Indonesia, the biggest tin supplier, is poised to ship the least metal in a decade, extending shortages into a fourth year at a time when surpluses are emerging for most other industrial metals.
Sales will drop 24 percent to 75,000 metric tons because most smelters won’t meet a higher purity standard that starts in July and ore reserves are diminishing, according to the median of 13 exporter and analyst estimates compiled by Bloomberg. Prices will rise 17 percent to $28,750 a ton on the London Metal Exchange this year, the median of 14 forecasts shows.
Tin climbed 22 percent in 2012, more than any other LME metal, after supply contracted the most since at least 2005. Morgan Stanley raised its estimate for this year’s shortage fourfold since October and RK Capital Management LLP, which manages $3 billion of assets, says tin is its top pick among base metals. Indonesia is raising purity standards so it can sell directly to electronics companies rather than refiners outside the country.
“Most of the smelters are not ready to comply with the new limit,” said Hidayat Arsani, president of the Indonesian Tin Mining Association, which has 30 members. “It’s unlikely that all of them will upgrade on time. It won’t be easy to get the technology installed and to find the people to operate it.”
The metal is leading gains this year, rising 4.6 percent to $24,480 as the LMEX index of six industrial metals advanced 1.2 percent. Tin gained 0.3 percent today, rebounding from the lowest close in two weeks yesterday. The Standard & Poor’s GSCI gauge of 24 raw materials has added 3.2 percent this year and the MSCI All-Country World Index of equities jumped 4.6 percent. Treasuries lost 1 percent, a Bank of America Corp. index shows.
Global demand for the metal used in solder and packaging will reach about 361,000 tons in 2013, compared with supply of around 357,000 tons, Morgan Stanley estimates. The projected 3,500-ton shortfall compares with an October estimate of about 800 tons, according to bank data. Orders for stockpiles in LME-tracked warehouses are 63 percent higher than a year ago, bourse data show. The tin market was valued at $7.2 billion last year based on consumption and the average LME three-month price.
Sales of consumer electronics will rise 4 percent to $1.1 trillion this year, according to GfK Digital World and the Arlington, Virginia-based Consumer Electronics Association. A mobile phone contains about 0.7 gram of tin and a tablet computer as much as 3 grams, data from St. Albans, England-based ITRI and Henkel AG, a Dusseldorf-based solder producer, show.
The rally is boosting profit for PT Timah, Indonesia’s largest producer, which has said it is preparing for the new rule raising export purity standards to 99.9 percent from 99.85 percent. The Pangkalpinang-based company will report a 29 percent increase in net income to 677.7 billion rupiah ($70.2 million) this year, according to the mean of 12 estimates compiled by Bloomberg.
Supply from mines in Indonesia, accounting for 40 percent of global trade, declined 10 percent to 94,000 tons last year, BNP Paribas SA estimates. Workers are digging 12 meters (39 feet) down to find ore, compared with about 3 meters five years ago, Arsani said. Demand will outpace supply by 5,000 tons this year, equal to 38 percent of LME-tracked stockpiles, based on the median of 10 analyst estimates.
Sales of consumer electronics fell 1 percent last year as Japan and the 17-nation euro area tumbled back into recessions, weakening demand for tin. The International Monetary Fund cut its estimate for 2013 global growth to 3.5 percent from 3.6 percent on Jan. 23.
Output in China, the largest tin refiner and user, will gain 6.8 percent to 156,000 tons in 2013, the fastest growth in at least five years, Credit Suisse Group AG estimates. Chinese consumption fell 1.7 percent last year, according to the Zurich-based bank. Prices fell 3.8 percent to 153,250 yuan ($24,614) a ton in Shanghai in 2012, and imports of refined metal fell to a seven-month low in December, data compiled by Bloomberg show.
“You really have the Chinese market oversupplied,” said Nicholas Snowdon, an analyst at Barclays Plc in New York. “You only have to look at the weakness in the Chinese prices versus LME to see that fundamental conditions in China aren’t supporting an improvement in prices there.”
Chinese stockpiles may diminish after the nation ended seven consecutive quarters of slowing growth in the final three months of 2012. Its economy will keep accelerating until at least the third quarter, according to the median of estimates from as many as 32 economists compiled by Bloomberg.
The shortages in tin contrast with surplus supply predicted by Barclays for aluminum, copper, lead, nickel and zinc this year. Mine output is expanding “solidly” across all base metals other than tin, Michael Jansen, the head of research at London-based RK Capital Management, said in an interview in Shanghai on Jan. 13. Its Red Kite Metals Fund, with about $240 million of assets, returned 12 percent in 2012 after gaining 29 percent a year earlier.
While inventories tracked by the LME are 41 percent higher than a year ago, they have slumped 51 percent since the start of 2010. Canceled warrants, or orders to withdraw metal, stand at 22 percent of stockpiles, data show.
The percentage may rise because the 75,000 tons of Indonesian exports anticipated in the Bloomberg survey this year would be the smallest since 2003, according to data from the country’s Central Statistics Agency.
Output at PT Timah fell 18 percent in the first nine months of 2012, company data show. Malaysia Smelting Corp., the second-biggest producer, said in November it suspended work at its PT Koba Tin unit pending the renewal of its permit. The company is still waiting, spokesman Joni Abdul Rahman said Jan. 18.
About 70,000 tons of extra mine supply is needed from 2012 to 2016 to meet annual demand growth of 2 percent and compensate for lower Indonesian output, according to Greenfields Research Ltd. in Australia and ITRI. That may require investment of about $2.5 billion, they estimate.
Shares of Timah rose 7.8 percent to 1,660 rupiah in Jakarta trading this year, outpacing the 1.1 percent decline in the 117-member Bloomberg World Mining Index. About 60 percent of the company’s production has been at a minimum 99.9 percent purity since 2011, said Corporate Secretary Agung Nugroho.
“I see another deficit this year, probably a deeper deficit than last year,” said Duncan Hobbs, an analyst at Macquarie Group Ltd. in London. “You’ve got to be pretty optimistic to think that Indonesia is going to do a lot more on the supply side.”