The critical metal whose price may be about to soar
The tin squeeze is on. The metal closed Monday’s session at the London Metal Exchange (LME) at $22,975/tonne. Industry insiders are expected $30,000 by Christmas; even staid banks are warming up to the idea, Pan-African operator Standard Bank expecting an average $28,000/tonne next year.
And hang on to your hats: the World Bank says tin output may be able to be kept at this level of production for another 19 years. All those smartphones and other electronic devices have placed a big strain on tin supplies (it’s the tin solder needed by almost every electronic device. Tin may still be used to line food cans, but it is increasingly a technology metal).
Here’s another scary fact: it can take decades to get a tin project from discovery to production. Sure, some are proceeding a good deal faster than that, but the vast majority of the extra production in recent years has been coming from the revival of previously abandoned or closed mines. Now the world’s biggest, which is San Rafael in Peru, is to start winding down three years from now — and there is not another mine of its size close to development.
At most, there are just 70 projects around the world which may — or may not — get into production by 2030. Meanwhile, the global deficit this year is expected to be around 6,000 tonnes (equivalent to Australia’s output). That doesn’t sound like much, but total tin stocks in LME warehouses around the world now sit 13,715 tonnes. By way of comparison, those same warehouses have 5.4 million tonnes of aluminium and 977,000 tonnes of zinc.
Meanwhile, Indonesia has thrown a spanner (a tin one) in the works. It is all about the fact that the government in Jakarta is requiring producers to trade the metal locally before the metal is exported — a policy designed to increase the value of tin and force global prices upwards by slowing shipments.
In other words, the Indonesian government, working with the large smelter owners like PT Timah, want to control the tin price. Many small smelter operators have been put out of business. Now the monsoon season is approaching and overall production and metal flow will become a trickle. Hence the squeeze.
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One source in the industry told Investor Intel they knew of a trading company which has been buying every Indonesian ingot they could get their hands on. The Indonesia Commodity and Derivative Exchange, in the tin pool, has only five sellers and 1 buyer.
Why does this matter? After all, Indonesia in only the No. 2 producer. According to the U.S. Geological Survey its 2012 tin output was 41,000 tonnes against China’s 100,000 tonnes. The important thing to know, however, is that China is not exporting much raw tin, which leaves Indonesia as the world’s main exporter (it being to tin what Morocco is to phosphate).
Then there is the issue of remaining resources. In its latest Global Economic Prospects report the World Bank analyses USGS figures regarding resource scarcity, that is, the years left where production can be maintain at present levels based on known resources.
In some cases, the trend has been positive since the last USGS survey 10 years ago: nickel’s output sustainability has increased from 43 to 46 years, copper from 26 to 41 years, and silver from 16 years to 22 years.
But tin has come back from 34 years to 19 years (the other two worse outlooks being iron ore from 136 years to 65 years, and bauxite from 180 years to 130). Tin reserves globally have declined by 40% over the past 10 years. The World Bank’s conclusion: “Of the nine metals examined here, tin appears to be the only reserve-constrained commodity”.
A survey by London-based ITRI and the Australia-Britain consultancy Greenfields Research shows those 70 potential projects between them have compliant resources totalling only 1.2 million tonnes of contained metal. “Only a handful of them are likely to becoming operating mines in the next few years,” is their conclusion. Most projects are either at very early stages or dormant and most of them would need at least a decade before they could be expected to come into production.
“On average, it appears it takes 10-12 years to progress from the publication of a maiden compliant resource through to initial production,” they say. (And remember it can take several years even to get to the maiden resource stage.)
And it looks as if Australia could be the pace-setter: of the 22 projects regarded as most advanced, 12 are owned by Australian companies.
Tin has not been a big issue for Toronto listed companies. The only ones that make the list with new projects are Silver Standard (TSX:SSO), Adex Mining (TSX.V:ADE) and Alphamin Resources (TSX.V:AFM).
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