May 16, 2016
Tin and zinc are the best base metals performers this year.
These two metals have risen on expectations of supply constraints. In the case of zinc, it’s about the number of key larger-scale mine shutdowns over the past months. Meanwhile, tin’s performance comes largely on the back of low first-quarter exports from Indonesia.
Indonesian tin exports slumped by 50% in the first quarter of the year. Tin exports were low because of the application of new government environmental regulations, requiring smelters to provide new documentation. Moreover, the decline in exports was also because of extreme weather conditions that affected production during the first quarter.
After a very weak first quarter, Indonesian tin exports recovered in April, with exports up 36% compared to April 2015. Although many analysts are calling for a come back in exports, a recovery in Q2 was expected, but it remains questionable whether the trend will continue.
The rebound in April suggests that some producers are receiving new export permits. Recently, the President of the Association of Indonesian Tin Exporters(AETI), forecasted that annual exports this year will be around 66,000 metric tons. The figure seems optimistic, given that in the first four months of the year exports totaled just 16,600 mt. However, even if the forecast proves accurate, it would still represent a fourth consecutive year of lower exports from the world’s largest exporter
Tin prices seem have been consolidating in April and May after the huge gains seen in the first quarter. It’s normal to see prices act like this as they need some time to digest previous gains. The question is whether this pause will be followed by a decline or a continuation of their upside moves. We see three major factors determining the direction of tin prices for the rest of the year:
A return to normal service by Indonesian exports would be bearish for tin prices, potentially bringing them down. However, as commented above, higher exports last month don’t really reverse the changes in the long-term structure of the supply chain.
The recent boost in demand for base metals comes thanks to Chinese stimulus, and the potential extension of it.
The performance of the U.S. dollar is important. If the dollar keeps weakening this will play into the favor of tin prices. While if future actions taken by central banks make the dollar strengthen, that would have a bearish effect on tin prices.