Tin Bear Market Slump Seen Curbing Record Exports: Commodities

Record tin exports from Indonesia, the largest shipper, are under threat after prices tumbled into a bear market and below production costs at some smelters.

Futures fell 14 percent to $20,200 a metric ton this year on the London Metal Exchange as Indonesian smelters accelerated sales before tougher rules on the purity of shipments start in July. Production costs average $22,000 a ton, the Indonesian Tin Mining Association estimates. Prices will rally as much as 19 percent to $24,000 by the end of December, according to the median of 18 forecasts from analysts, exporters and traders compiled by Bloomberg.

A similar survey in January predicted $28,750, underscoring the surprise at the scale of first-quarter exports. Analysts are still bullish because while supplies of metals from aluminum to copper are exceeding demand, Barclays Plc and Morgan Stanley expect a fourth consecutive year of tin shortages. Shipments of personal computers, tablets and mobile phones, all using tin-based solder, will surge 9 percent to a record 2.4 billion units this year, according to Gartner Inc., a research company.

“Tin is still, from a fundamental perspective, in a better shape than most of the LME-traded metals,” said Duncan Hobbs, an analyst at Macquarie Group Ltd. in London. “We’re just a little less positive on the tin balance than we were at the beginning of the year.”

Curbing Shipments

Tin tumbled into a bear market May 1 after dropping 20 percent from its closing high Jan. 18, amid increasing concern that economic growth may slow. The LMEX index of six industrial metals retreated 9.4 percent this year, and six of the seven worst performers in the Standard & Poor’s GSCI gauge of 24 commodities are precious or base metals. The MSCI All-Country World Index of equities gained 9.9 percent. A Bank of America Corp. index shows Treasuries returned 0.3 percent.

Indonesia’s exports jumped 20 percent to 26,805 tons in the first quarter, the highest level on record for the period, Macquarie Group estimates. That pace is unlikely to continue beyond June because smelters usually respond to price slumps by curbing shipments, new quality standards start in the third quarter and producers have been reducing stockpiles, according to Morgan Stanley.

PT DS Jaya Abadi, whose plant in Bangka-Belitung province supplies about 3,600 tons of ingots a year, is already cutting output, said Operations Director Muhammad Buntar Gunawan. Production costs are $21,000 a ton, he said.

New Regulations

Exports may be further impeded by new rules increasing the tin content of cargoes and reducing lead and cadmium levels. Fifteen to 20 smelters will be able meet the new regulations, said Hidayat Arsani, president of the country’s 30-member tin mining association. CV Serumpun Sebalai, a smelter company in Central Bangka, can produce higher-grade tin but will need new technology to cut lead content, President Director Tjahyono said.

Morgan Stanley estimates this year’s supply shortage at 800 tons, as consumption rises 5.8 percent to 358,000 tons. Barclays predicts a 7,000-ton deficit, with stockpiles averaging 3.3 weeks of demand, the lowest since at least 2004.

Futures aren’t signaling shortages right now, with tin for immediate delivery priced at a $50 discount to the benchmark three-month contract. While that’s smaller than the $62 spread reached March 21, traders were paying a premium of as much as $120 in September, bourse data show.

Stockpiles in warehouses tracked by the LME reached 14,670 tons on April 16, the most since November 2011. Orders to withdraw metal declined 15 percent since the start of the year, exchange data show. Inventories in Malaysia account for 87 percent of the global total.

Refined Metal

Global supply of refined metal will advance 6.5 percent to 357,000 tons this year, the fastest expansion since 2010, Morgan Stanley estimates. That’s still little changed from 2007 as ores become harder to extract. Mining companies in Indonesia are now digging 12 meters (39 feet) down, a fourfold increase from five years ago, the country’s tin mining association said in January.

Indonesia may ship 80,000 tons this year, according to the median estimate in a Bloomberg survey of 12 exporters, traders and analysts. While that’s more than the 75,000 tons predicted in the January survey, it would be 19 percent less than the amount sold in 2012. The government is forecasting a 10 percent gain in production to 100,000 tons.

Shares of PT Timah, the world’s third-largest producer, fell 11 percent to 1,370 rupiah in Jakarta trading this year. They will reach 1,443 rupiah in 12 months, the average of nine analyst forecasts compiled by Bloomberg shows. The company will report a 38 percent gain in profit to 594 billion rupiah ($61 million) this year, according to the mean of 10 estimates.

Shutting Smelters

Producers curbed supplies previously during slumps, with 24 of 28 smelters in Bangka Belitung shutting smelters or selling less in August, after futures fell to a two-year closing low. Tin rallied 12 percent the following month. Sales were also reduced in the final quarter of 2011, spurring a 19 percent rebound in prices in the first three months of 2012.

Shortages may be exacerbated by economic growth in China, the biggest tin refiner and consumer, which may accelerate this quarter and next, according to the median of 30 analyst estimates. A decline in the country’s tin imports and domestic production signal a run down in stockpiles, which may boost demand in the second half of the year, according to Barclays.

Combined shipments of personal computers, mobile phones and tablets will increase a further 6 percent to 2.56 billion units in 2014 and reach almost 3 billion units in 2017, according to Stamford, Connecticut-based Gartner. Solder accounted for about 50 percent of tin consumption last year. A mobile phone contains about 0.7 gram of tin and a tablet as much as 3 grams, according to data from ITRI Ltd., a St. Albans, England-based researcher, and Henkel AG, a Dusseldorf-based solder maker.

“Tin is still our favorite one,” said Gayle Berry, an analyst at Barclays in London. “It’s the only one in deficit this year. Having said that, we have become cautious.”

Before it's here, it's on the Bloomberg Terminal.