U.S. tin premiums rise as supply constraints mount

* U.S. tin premiums up more than 50 percent on the year

* Supply woes, low stocks create holes in physical market

Tin premiums in the United States have risen more than 50 percent this year and are expected to strengthen further against a backdrop of dwindling domestic supplies and growing supply constraints from Indonesia, the world's top exporter, physical dealers said.

Premiums for grade A material, which contains 99.80 percent tin, were seen trading in a range between $550 and $600 per tonne above the London Metals Exchange three-month futures price CMSN3, which vaulted last week to a record $26,790 per tonne.

The grade A premium for the metal, which is used in food packaging and in the soldering of electronics, is up more than 50 percent from a range of $350 to $400 at the beginning of the year. Premiums for low-lead material, which the dealers said was much harder to obtain, stood at $650 to $700.

Physical dealers expect premiums to remain relatively strong heading into the end of the year as supply issues remain and above-ground stockpiles of the metal continue to decline.

LME warehouse stocks eased 20 tonnes to 12,255 tonnes on Monday, having fallen about 55 percent since January, and stand at their lowest since May 2009. 

"I believe there is a shortage of material ... with Indonesia not shipping as much material into the United States, we are seeing a number of holes in the market," one dealer said.

"We are seeing a number of customers who we normally have not sold to in the past call, looking for metal ... there is a definite shortage of material in the marketplace right now," he said.

Hampered by heavy rains and the depletion of easily mined onshore reserves, Indonesia's refined tin output was forecast to be down nearly 6 percent this year. During the first eight months of the year, Indonesia exported an estimated 60,107.03 tonnes of refined tin, down 11.3 percent from the same period in 2009. 

The Association of Indonesia's Tin Industry said the country's monthly tin exports could slip below 7,000 tonnes until March. The market's supply constraints were not limited to Indonesia.

"The Chinese are not exporting either ... that's the other factor," another trader said.

China's tin supply has taken a hit as well due to production cuts at some major smelters. 

According to consulting firm ITRI, China's production of refined tin in 2009 amounted to 130,000 tonnes, while Indonesia produced about 62,500 tonnes. "I don't see any stop to this," the second dealer said of the futures price rally. 

"Some people are saying it's going to get up to $30,000 ... as the market price goes up, the premium has to go up," he said. Source: Reuters