Why tin is expected to rally in 2015, page-2

After a tough year that included a slide to a 15-month low, tin prices appear poised to rally on solid demand and restricted supply over the next couple of years.
The industry’s two biggest producers, Indonesia and China, face sizable obstacles to mining more of the silvery-white metal as ore grades decline, analysts say. Meanwhile, demand should rise steadily over the next few years, as new technologies prompt manufacturers to use tin in more types of electronic products.
As with many commodities, China plays an important role in the tin market. It produces over 100,000 metric tons of the metal a year, more than any other nation, and uses more than 40% of the world’s supply. While a slumping real-estate market has sparked anxiety over the outlook for the world’s No. 2 economy, analysts expect China’s burgeoning middle class to ramp up spending on consumer goods that use tin, including cars and computers.




“TIN, UNLIKE MANY of the base metals, is not heavily used in construction, and thus the downturn in China’s property sector should not significantly affect demand,” says Caroline Bain, an economist for London-based consultancy Capital Economics. “Tin should actually be a beneficiary of any rebalancing of the Chinese economy toward more consumption-driven growth, given that its primary use is in consumer electronics.”
To be sure, technological advances are a double-edged sword for tin. While some developments increase the number of applications, others, including a push toward smaller components and devices, have meant less tin is needed.
“The electronics industry is going through a process of miniaturization, which means less solder per item, which in turn somewhat counters the impact of the recovery in the electronics industry,” according to research from London-based broker Sucden Financial.
On the supply side, producers are expected to face difficulties setting up new mines as a decade-long commodities boom ends, leaving many miners struggling to secure financing for new projects, Capital Economics’ Bain says. Mine supply growth is likely to slow to about 2% in 2015 from 6% this year, analysts say.
China is battling rising costs linked to labor and tighter environmental restrictions, Bain says, which will inhibit production. The Association of Indonesian Tin Exporters has also forecast a decline in shipments of the metal in 2015, due to the government’s restrictive export policy on natural resources.
Moreover, stockpiles have fallen in recent years, drawn down during times when low prices had prompted producers to curb output. “There is little in the way of a cushion to balance the market in 2015 if, as we expect, growth in supply slows,” Bain says.
The price of tin on the London Metal Exchange was $20,250 a metric ton on Friday. In October, prices fell to $19,000 a ton, their 2014 low point, weighed by unexpectedly subdued demand and a broader slide across commodity markets.
Capital Economics expects prices to reach $23,000 a ton by the end of next year and to rise to $24,000 by late 2016. BNP Paribas is even more bullish, predicting global production will fall short of demand by 10,000 tons next year, widening from an estimated shortfall of 3,000 tons this year. The bank forecasts prices to average $24,000 a ton next year and $27,500 a ton in 2016.