BNP Paribas – Metals Week: Tin could rise back toward $30,000/mt in 2012

6 December 2011, Ben Kilbey

Tin could head back toward $30,000/mt in 2012 on the back of strengthening demand and sluggish supply, BNP Paribas said in a note last week.

“Stronger demand and sluggish supply may eventually lead to real physical market tightness, which should push the price back up towards $30,000/mt. And we retain our view that tin’s premium over nickel will widen again to at least $5,000/mt,” said BNP Paribas strategist Stephen Briggs in a research piece. Briggs said that the positive story for tin was never based on the demand side of the equation, “it was always founded on the supply side, specifically the very limited scope for production growth at least through 2012.”

He noted that a tin market deficit of 10,000 mt was equivalent to deficits in the copper and nickel markets of 550,000 mt and 45,000 mt, respectively. “And tin inventory cover today is historically lower than those of most base metals. In the short term, tin may be held back by the apparent failure of the Indonesian export ban. But we still believe it has among the best, if not the best, price prospects for 2012.”

At the start of October 28 Indonesian companies, including state-owned Timah, halted exports to push a higher tin price. Indonesian tin producers vowed to halt exports of the base metal until the price reached $25,000/mt. However, on November 30 about seven of Indonesia’s smelters said they would resume exports of refined tin last week as one smelter has already broken the ban on exports until the end of this year. The smelters plan to export about 1,000 mt, a senior official from the Indonesia Tin Association said last week.

In the BNP Paribas note, Briggs added, regarding global production: “There is scope for mine production to grow at a faster pace in 2012. The performance of Minsur in Peru may improve and the rejuvenation of the Brazilian industry should continue. If market conditions are favourable, Indonesia’s small-scale producers in particular may be able to raise output.” But, he added, ” the outlook for the Democratic Republic of Congo is highly uncertain and there will be little contribution from new mines, especially now that tin production at Pirquitas is on hold.” The bank forecast that world mine output would recover by just 3% next year, which would leave it still 10% below the peak of 2005.

Backing up this positive view, Brian Menell, CEO of Africa-focused tin miner Tinco, recently told Platts: “There are many reasons to be bullish on tin, not least because global supply is limited and global demand is growing. Over the last two years, the price of tin has outpaced that of other base metals as the world tin market has expanded rapidly and supply has become more limited due to the crackdown on illegal mining in China and Indonesia.”

Menell added that “production in Bolivia and Peru has also fallen in recent years as mines get older and there is limited scope to increase production. At the same time as supply is constrained, global demand is increasing as tin continues to replace lead as a solder. Rising demand for electronics in emerging economies means that the need for solders continues to grow.”

Three-months LME tin closed at $20,250/mt on December 9, down from April’s 2011 high of $33,600/mt.