China Tin Output May Exceed Expectations, Create Oversupply

HONG KONG, Aug. 25 -- China's tin output may exceed expectations this year as multi-year high prices in the world's top consumer and producer of the metal prompt smelters to ramp up operations even though demand may not keep pace.

Production has already risen 14.5 percent in the first seven months of this year, making state-owned research firm Antaike raise its forecast for the year along with consumption estimates, Ran Jun, an analyst said, without giving new numbers.

Antaike had earlier predicted a 4 percent fall in output from a year ago to 129,000 tonnes this year and an increase in consumption of 7.4 percent to 131,000 tonnes this year.

An increase in output could create an oversupply in China as most smelters have been clearing stocks accumulated last year including China's top producer Yunnan Tin (000960.SZ: Quote) as appliance and electronic makers step up orders.

"This year we sold off all stocks that we built last year," said an executive at Yunnan Tin, which has an annual capacity of above 60,000 tonnes.

He did not provide a figure, but last year Yunnan Tin had proposed to put 30,000 tonnes to the government of Yunnan's stock-building plan, designed to help local smelters cope with the global economic crisis.

Antaike's Ran estimates that tin consumption in China has already reached 68,000 tonnes in the first half of the year, without including the stocks that Yunnan Tin sold.

PRODUCTION SURGES

China's tin production rose 14.5 percent from a year earlier to 83,611 tonnes in the first seven months of the year, according to official data, even as drought and the recent flooding in some provinces had cut output at a few smelters, Ran said.

Still, most producers have increased production as prices SN-1-CCNMM surged to a high of above 150,000 yuan ($22,059) per tonne this month in Shanghai, along with a two-year high in prices on the London Metal Exchange MSN3.

Spot tin traded around 147,000 yuan on Wednesday, compared to below 120,000 yuan a year ago and about 100,000 yuan in the beginning of 2009.

Yunnan Tin has not been hit by the flooding because that happened mostly in the western part of the province, the executive said. It aims to produce more tin than a year ago.

China Tin Group, the second-biggest producer, located in the southwestern region of Guangxi, has increased production and output would be well over 10,000 tonnes this year, a trading manager said.

The firm, preparing to launch an initial public listing in Shanghai next year, has supplied more than 1,500 tonnes of tin per month onto the spot market since May, traders said. ($1=6.8 yuan)