Tin prices: The top 10 most important drivers

1) Low liquidity

The LME tin contract is simply too illiquid to be on the radar of most funds. Unlike the major base metals such as copper whose price is heavily driven in the short term by funds eyeing macro-related factors like currencies and trade flows, the tin market is just too small in terms of volume. That means its price can be volatile and driven by obscure tin related factors that maybe hidden from all but the most seasoned tin market observers.

2) Concentrated, volatile supply

Three countries account for 66% of global mined tin supply; China with one-third share of total supply, followed by Indonesia and Myanmar both with a 17% market share.

Indonesia has traditionally been the wildcard, and thats a problem given that it is also the largest global exporter of tin. Earthquakes, monsoons and regulatory battles with major producers have frequently curtailed production from the exporter. That being said, any hit to exports in the past have tended to be brief.

Myanmar emerged as a major new source of tin around 2013, when significant tonnages of mine concentrate first started being imported by China. The sustainability of the tin mines in Myanmar’s Wa region has been the question of much debate in the tin market, with suggestions that reserves are being depleted rapidly.

3) Soldering demand the primary driver

The main application for refined tin is for soldering (accounting for 47% of demand in 2017). Electronics component miniaturisation and economisation remain the greatest threat to tin use in solders – an ever-decreasing amount of metal is being used to achieve the same performance. This is offset by market expansion and the opening of new markets such as robots, e-bikes and electric vehicles.

Chemicals and tinplate account for 18% and 14% respectively, followed by lead batteries with an 8% market share leaving 13% for other uses.


Photo by Chris Ried on Unsplash

4) New technologies

According to the International Tin Association there were more than 5,000 scientific papers and patents on tin related technologies published in 2017 demonstrating a strong future for this versatile element. Energy uses and technologies are the strongest new use drivers, with tin additions to lead-acid batteries and solder used for joining solar cells already benefiting. Over the next decade tin has many opportunities in lithium-ion and other batteries, solar PV, thermoelectric materials, hydrogen-related applications and carbon capture.

The challenge for investors (as with nickel) is understanding the impact that new technology demands could have on the metal versus the established end markets.

5) Stock levels

In theory rising tin stock levels should be indicative of a weak market, as supply exceeds demand. It is normal for prices and inventory levels to generally move in opposite directions. When tin producers don’t like the market price and think that they can get a better one by waiting, they put their production into warehouse storage and wait for better times. When prices rise up to or above a price level that the producers like, tin starts coming back out of inventory and onto the market. So watching tin inventory levels can give us insights about where the producers think a fair price is.

Both the LME and the Shanghai Futures Exchange (ShFE) report tin stocks. Traders should monitor the change in tin inventories at both exchanges for clues about tin supply and prices.

6) US dollar

Like most internationally traded commodities tin is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.

A weaker dollar can also act as a disincentive to producers to increase output. The prospect of a lower profit margin acts as an incentive to decrease the supply of the metal.

7) Conflict minerals

Under the Dodd Frank Act of 2010 companies are required to investigate their supply chains for tin, tantalum, tungsten or gold mined and then sold to finance insurgent militia groups in the DRC and surrounding central Africa region. Tin may pose the biggest challenge for companies looking to rid their supply chains of “conflict minerals” blamed for funding violence in the Democratic Republic of the Congo.

8) Chinese demand

As families furnish their homes with large appliances the demand for tin typically increases. Since China is the largest global end user of tin (accounting for around half of refined tin use) the price of tin typically reacts in advance to signs of faster or slower growth in Chinese demand.

9) Input prices

Tin occurs in cassiterite ore bodies, and breaking down these ore bodies to extract the metal expends energy. Producing tin requires ample supplies of coal, electricity and crude oil. Mines and blast furnaces utilize energy to extract tin ores from the ground and process it into tin. These costs can have a big effect on primary production. Similarly, the costs of scrap tin can impact the price of secondary production.

10) Political interference

In the past the Indonesian government has attempted to tighten its grip on the country’s independent tin sector. Meanwhile, China has cracked down on illegal mining operations in a bid to improve environmental standards.

Related article: Copper prices: The top 10 most important drivers

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The best of Materials Risk 2018

Of the 29 articles published on Materials Risk this year here are the top 10 as measured by page views and engagement.

1. Probably the best podcasts on macroeconomics, markets and geopolitics

Over the past year I have become a complete and utter convert to podcasts. Tired of spending most of my day staring at a screen they are the perfect means to keep on learning but also giving your eyes a rest. I am constantly amazed at the quality of many of the podcasts out there. Sure many of them have a team of researchers providing background information but still to produce weekly podcasts of such a high standard is amazing.

2. A long term view creates opportunities for commodity investors: Interview with Mike Alkin 

I had the opportunity to talk with Mike Alkin. Mike is the founder and Chief Investment officer of Sachem Cove Partners, a hedge fund that invests solely in uranium and nuclear fuel cycle companies, a newsletter writer and someone who has spent 20+ years in the hedge fund business as an analyst, portfolio manager and partner.  In this interview you’ll learn how to manage a commodity investment over a long cycle, factors to look for when a commodity market is turning and why the uranium market is so unusual, Mike’s views on geopolitics in the uranium market, that some uranium mines also produce a valuable by-product and finally future careers in finance.

3. Soybean prices: The top 10 most important drivers

From the weather to China and from protein demand to tariffs here are the top 10 factors affecting soybean prices.

4. A growth business: Potash market shows signs of life

As you may know I’m always on the look out for commodity markets that have fallen out of favour. Ones that are hated by investors so such that any sense of fair value is so far down the list that they start to look like there is little in the way of downside risks. This brings out the potential for asymmetric returns for us as investors where the downside is limited, but the upside is potentially (but not always) very high. In this article I highlight the potential upside for potash.

5. Positioning analysis in commodity markets: An interview with Mark Keenan

I had the opportunity to talk with Mark Keenan, Global Commodities Strategist & Head of Research Asia-Pacific at Société Générale. In this interview you will learn why it’s important to be aware of the objectives of all market participants in commodity markets and why using methods like positioning analysis offer very good insights into whose doing what, and what happens when they do too much of it and how much positioning then relates to other factors like price, curve structure and fundamentals.

6. Electric dreams: If you thought predicting oil prices was tricky, try cobalt or lithium

Implicit in any forecast of commodity prices is an assumption of how technology could evolve and how its adoption will affect commodity prices. Commodity prices provide the incentive for new technology, yet also influence commodity production and consumption. Innovations, once introduced, may lead to higher yields from agriculture, more oil being extracted from offshore wells and deeper mines to extract more metals and minerals – all of which could eventually lead to rising commodity supplies.

7. Platinum prices: The top 10 most important drivers

From the vehicle demand to emissions tests and from recycling to investment demand here are the top 10 factors affecting the price of platinum.

8. Buy the rumour: Wheat prices spike on Ukraine export ban social media post

Wheat futures spiked by almost 5% in August after comments from the Ukrainian deputy agriculture minister on Facebook of “export limits for wheat” were misinterpreted as an imminent export ban.

9. Shining a light on extractive industries: An interview with Åsa Borssén from Raw Talks

I recently had a chance to talk to Åsa Borssén from Raw Talks. In this interview you will learn more about why governments struggle so much with managing resources and what steps they are making to change things for the future. We also talk about what investors in resource companies should think about when allocating their capital to resource dependent countries, both now and in the future.

10. El Niño looks imminent – here’s what that means for commodity markets

First observed in the 19th century by Peruvian fishermen, the recurring weather phenomenon is known to affect Australasia as well South America. Its climatic effects can reach as far as West Africa triggering downpours or droughts. Previous episodes have had a significant impact on crop yields and the price of agricultural commodities as well as metal and energy prices.

More interesting things you might have missed.

  • I publish a fortnightly newsletter that includes links to the best research I’ve seen freely available on the internet. Mostly commodity related but lots of macroeconomics.
  • Check out my list of recommended books.
  • If you haven’t read them yet I’d encourage you to buy my books – Commodities: 50 Things You Really Need To Know and Crude Forecasts, Predictions, Pundits & Profits In The Commodity Casino.
  • I published a short email course on commodities on GoHighbrow.

Thank you

I really appreciate your support over the past twelve months. I’ve had the opportunity to connect with some great people through writing for Materials Risk. I hope to do more of the same in 2019.

Until then, happy New Year.

Peter

Materials Risk is a verified creator on the Brave Rewards platform. If you'd like to support Materials Risk please consider tipping some BAT. You can download the Brave web browser here.

Potash market continues recovery on tight supply

Back in July I published an article detailing the potential bull case in the potash market. Key to the observation that prices were close to a floor was evidence of supply discipline.

In late 2017 Canadian producer K+S idled two of its mines for around two months while also running production at their most profitable mine (Bethune) around 400,000 tonnes lower than what the nameplate capacity would imply.

As a result the price of potash had stabilised at around $200 per tonne – a level it was at for the previous two years. Fast forward five months and there are further signals of upward price pressure. 

The Belarusian Potash Company (the world’s largest potash producer, controlling 20% of the global market) recently signed a new contract with its Chinese buyers at a higher than expected price of $290 a tonne, up 25% from the previous year. The agreement with China, the world’s biggest potash user, provides a benchmark for the whole sector.

Longer term there is a risk that other suppliers will bring on extra output, neutralising the nascent recovery. For now at least this has been put on hold following the decision by EuroChem to delay its entry into the potash business.

The Russian controlled company initially expected to make 500,000-600,000 tonnes of potash this year from its new Usolskiy plant, near Russia’s Ural mountains. It now expects to produce about 300,000 tonnes. Meanwhile, the start up of EuroChem’s second plant, VolgaKaliy, that was previously scheduled for this year is now expected to take place in the first half of 2019.

The demand side of the equation has also been strong. Agricultural commodity prices have remained high relative to levels seen over the past couple years; in turn this has incentivised farmers to purchase more fertiliser.

Related article: A growth business: Potash market shows signs of life

Image courtesy of Belarusian Potash Company (BPC), the trading division of Belaruskali )

Materials Risk is a verified creator on the Brave Rewards platform. If you'd like to support Materials Risk please consider tipping some BAT. You can download the Brave web browser here.