(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
The price of tin has crashed over the last few days.
London Metal Exchange (LME) three-month metal fell to a one-year low of $30,405 per tonne on Monday, extending a precipitous slide from March’s record high of $51,000.
Tiny tin has been caught up in the broader risk-off trade playing out across the industrial metals markets as fears of recession grow.
Market optics have also changed. Both LME and Shanghai inventories have been rising and physical premiums have been softening in a sign that tin’s acute supply-chain tightness is abating.
But the relief may yet be short-lived as Chinese producers collectively reduce output in response to the price collapse.
Tin’s historic peak in March seems to have been the trigger for investors taking their profits and exiting the market.
Funds were collectively net long of the LME tin contract to the tune of 2,447 contracts in January of this year, when the price was still on a bull tear. The bull bet was slashed to just 682 contracts in May with a slight bounce since.
Investment funds captured in the “Other Financial” category of the LME’s Commitments of Traders Report actually turned net short last month and are now close to neutral.
Speculative flows in the tin market are always small relative to the likes of copper due to the low liquidity of the contract. But the flip side of low liquidity is that shifts in fund positioning can have an outsize impact on price.
Particularly if everyone’s taking profits at the same time, which seems to have been the case. The last two months have seen an almost complete clear-out of the bull bets that accumulated as tin marched ever higher over the course of 2021 and early 2022.
Tin’s topped-out technical dynamics have coincided with an easing of the extreme market tightness that characterised the market last year.
LME warehouse stocks have been creeping higher and at a current 3,260 tonnes are up by 1,215 tonnes on the start of the year.
Exchange stocks had shrunk to near zero in both Europe and the United States but there are now 905 tonnes in the Belgian port of Antwerp and 670 tonnes at Baltimore.
That reflects improved availability in the physical supply chain with premiums softening in both Europe and the United States.
Tin in Rotterdam is now commanding a premium of $1,150 per tonne over LME cash, compared with a July 2021 peak of $1,750, using the mid-point of Fastmarkets assessments.
The premium for metal in the U.S. Midwest has fallen from $3,950 to $2,200 per tonne over LME cash over the same period.
Activity is reportedly slow and not helped by the steep slide in the LME price.
The replenishment of tin’s depleted supply chain is, however, only partial.
Physical premiums remain higher than at any time prior to the start of 2021.
LME stocks may have risen by 59% so far this year but they remain low by any historic yardstick, currently equivalent to just three days global usage.
Time-spread tension remains hard-wired into the LME contract, the cash premium over three-month metal closing Thursday valued at $263.50 per tonne.
Visible inventory has also been rising in China.
Stocks of tin registered with the Shanghai Futures Exchange (ShFE) have more than doubled since the start of January to a current 4,022 tonnes, although the Shanghai forward curve, like London, remains firmly backwardated.
China has been the soft spot for tin demand this year with manufacturing activity weak due to lockdowns.
The country’s producers have also been hit hard by the implosion in price over the last couple of months.
Constrained from fully hedging their concentrate input and metal production on the ShFE, which like London also suffers from poor liquidity, many are now experiencing extreme margin compression, according to the International Tin Association (ITA).
The collapse in prices means that “concentrate purchased just one month ago is worth notably less”, the ITA notes, adding that many producers “are already having to absorb significant losses when selling metal”.
Multiple smelters have rescheduled annual maintenance stoppages, including Yunnan Tin, the world’s largest producer with output of 82,000 tonnes last year, which will take down one of its plants for 45-50 days.
Based on a survey of 17 Chinese operators, the ITA expects operating rates to fall significantly over the summer months with a collective loss of production of around 12,000 tonnes through the beginning of August.
This is standard practice for China’s tin smelters when the price turns ugly and the collective supply response has in the past acted as a powerful price support.
What’s different this time around is the elevated price levels at which it is unfolding.
The LME three-month price has steadied since Monday, last trading around the $32,100 per tonne level.
Prior to the recent bull charge tin’s all-time price high had been $33,600 per tonne back in 2011.
The price may have collapsed by 40% in the space of two months but LME tin has found a floor at what has historically been a hard ceiling.
If it holds, it will be confirmation that tin pricing is undergoing a structural change defined by episodes of physical scarcity.
(Editing by David Evans)