Tin May Surge as Global Supply Lags Behind Demand, Macquarie's Lennon Says

Tin, the best performer on the London Metal Exchange this year, may extend its advance as supply lags behind demand, reducing global stockpiles, according to Macquarie Group Ltd. 

The metal, used in packaging, may gain 17.5 percent from $21,600 a metric ton, analysts including Jim Lennon wrote in a report. That’s $25,380, according to Bloomberg calculations. Tin reached a record $25,500 on May 15, 2008, before the global recession cut prices to less than $10,000 by December that year. 

Stockpiles monitored by the London Metal Exchange dropped to 5.6 weeks of global consumption last month, from 8.2 weeks in late 2009, the analysts wrote in today’s report. The deficit may be 17,000 tons this year as solder and plate demand improves, compared with a surplus in 2009, the report said. 

Supply may lag behind usage “through next year at least,” the report said. “It can be argued that there is 17.5 percent upside” from the level of $21,600 a ton, the analysts said. 

Three-month tin futures have gained 29 percent this year, beating second-placed nickel’s 23 percent climb. Tin was little changed at $21,900 at 7:51 a.m. in London today, after touching $21,960 on Sept. 10, the highest price since Aug. 1, 2008.

Production Problems

Consumption may grow 15 percent to 345,500 tons this year, while output may expand 2 percent to 328,500 tons, the Macquarie report said. Production problems in Indonesia, the world’s biggest supplier, had contributed to lower output, “which should be supportive of prices,” the report said. 

Indonesia’s government said last month that the nation’s tin output may plunge 20 percent this year after bad weather disrupted mining. Production may drop to about 85,000 tons compared with a full-year target of 105,000 tons, Witoro Soelarno, secretary to the director-general of minerals, coal and geothermal, said on Aug. 11. Production last year was also 105,000 tons, according to a Dec. 31 estimate from the ministry. 

Macquarie’s analysis is similar to that from Standard Bank Plc, which has said tin production next year will be 13,000 tons less than demand after an estimated 6,000-ton shortage this year. Leon Westgate, an analyst at the bank, said on Aug. 27 that he was “bullish on tin, as fundamentals are quite positive.” 

Standard Bank raised its forecasts for tin in a report from Westgate on Sept. 3, estimating that the metal will average $18,875 a ton in 2010, from an earlier target of $17,300. The 2011 outlook was increased by $3,000 to $23,200 a ton. 

Reduced output of tin concentrates from Minsur SA, the world’s fourth-largest producer, may also contribute to the global supply shortfall, the Macquarie report said.

The recovery in tin demand is reflected in “strong physical premiums,” as well as in the rise in futures prices, with global solder shipments jumping 50 percent on year in the first half of 2010, the Macquarie analysts wrote. 

Separately, Joseph Kabila, president of the Democratic Republic of Congo, may suspend sales from the country’s richest tin-mining region, a provincial official said Sept. 10. The African nation was not mentioned in the Macquarie report.Source: Bloomberg