Citigroup cuts copper forecast on tariffs risk, China outlook
The bank has cut its short-term outlook for copper prices by 11% to $8,500 a ton over the next three months.
Copper may have grabbed the headlines this week by making a record nominal high, but tin remains the strongest year-to-date base metals performer.
London Metal Exchange (LME) three-month tin is currently trading around $33,500 per metric ton, up by 32% on the start of January, compared with copper’s 21% price gain.
Tin is a much smaller market but it has attracted its fair share of fund money as investors chase the combination of strong demand profile and structurally challenged supply.
Tin ticks both boxes, particularly the latter. One of the world’s largest mines in Myanmar has been closed since August and shipments from Indonesia, the world’s largest refined metal exporter, have dropped sharply this year.
Supply disruption has already seen London tin rally to a near two-year high of $36,050 per ton in April and it almost matched that this week with a Monday high of $35,355.
However, there is one element missing from the bull picture.
While the price has been rising, global exchange inventory has been rising too. The conflicting signals highlight the disconnect between longer-term bull narrative and current demand reality.
Stocks registered with the Shanghai Futures Exchange (ShFE) have grown from 6,346 to 17,818 tons since the start of January.
Exchange inventory is the highest it’s been since the launch of the Shanghai tin contract in 2015 and by some margin. The previous record in 2017 was just 10,964 tons.
There was an accelerated seasonal rebuild over the lunar new year holidays but the usual post-holiday decline has been conspicuous by its absence. Stocks have simply climbed further.
The scale of increase may reflect a shift in trading patterns by China’s massive tin production sector in the form of a movement of off-market inventory to exchange storage.
Shanghai tin volumes have grown exponentially in recent years, a record 39 million tons trading in 2023. Speculative flows have played their part but greater trade participation is also likely in the mix.
The key take-away, though, is that there is a lot of surplus tin sitting in Shanghai.
Stocks of tin registered with the LME are much smaller at a current 4,945 tons and they are still down by a significant 36% on the start of the year.
However, the downtrend has run its course for now. LME inventory hit a near one-year low of 4,045 tons in the middle of April and has slowly rebuilt since.
Significantly, the amount of tin in the system awaiting physical load-out has fallen to just 90 tons from almost 600 tons at the end of April. The flow of metal out of LME warehouses is set to become a trickle in the days ahead.
Moreover, LME time-spreads are in healthy contango, suggesting there is good availability of metal. The benchmark cash-to-threes period was valued at a contango of $185 per ton at the Thursday close, compared with a backwardation of $425 on April 23.
Tin’s supply problems haven’t gone away.
Exports from Indonesia have been disrupted by a new licensing system introduced at the start of the year. Shipments fell to near zero over January and February and only started picking up in March but they remain below historical averages.
Total exports slumped to 6,992 tons in the first four months of this year from 16,778 tons in the same period of 2023.
The market has not only been able to absorb the loss of 10,000 tons of Indonesian metal relative to last year but has seen stocks build at the same time.
Similarly, Chinese tin smelters appear to have been able to lift run-rates despite much reduced flows of raw materials from the Man Maw mine in Myanmar, which was closed in August for an audit by the United Wa State Army.
The Wa authorities have allowed the movement of above-surface stocks but have yet to approve a formal restart of mining operations.
Yet China’s refined tin production in March was 15,556 tons, up 35.74% from February and up 2.92% year-on-year, according to local data provider Shanghai Metal Market (SMM). SMM expected the pace of yearly growth to pick up to 11% in April.
The combination of continuing supply disruption and climbing inventory suggests tin’s weak demand patch is proving more prolonged than expected.
Global tin usage fell by 3.2% in 2022 and was expected to contract another 1.6% in 2023, according to the International Tin Association’s annual survey of consumers conducted in October last year.
Semiconductor sales, an important indicator of tin usage in circuit-board soldering, declined sharply over 2022 and early 2023 but have bounced back in the intervening months.
However, the recovery is showing signs of losing momentum. First-quarter sales were up an impressive 15.2% on the first quarter of 2023 but were down by 5.7% on the previous quarter, according to the Semiconductor Industry Association .
This year’s sharp jump in tin price and the accompanying market volatility are generating a destocking impulse, which is exacerbating the underlying softness in demand.
Tin is by no means the only metal seeing such a clash between bullish expectations and not-so-bullish supply-chain reality.
But the disconnect is particularly stark and growing ever wider as global inventory keeps building.
(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
(Editing by Marguerita Choy)
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