Tin prices have been sliding recently, with the LME Cash price having fallen by over $2000/t since Monday, 25th September. Looking back only as far as late July, when prices were above $28,600/t, the decline appears even more dramatic. It is not so long since tin prices witnessed a multi-year bull run which began at the start of the Covid pandemic and lasted until March 2022. The recent falls in price follow a period of increasing prices during Q2 of this year, so in this week's article, we'll look at some of the key reasons behind the recent drop in prices.
When looking at the fall in tin prices, it is important to note that the long bull run that took place during the pandemic created a unique environment for tin demand. With lockdowns enforced across the world, demand for electronic devices to support working from home surged, which also increased the demand for semiconductors. Semiconductor manufacturing is a key source of demand for tin, and therefore once the pandemic eased and electronic device demand began to wane, as did the demand for tin.
More recently, the continued lack of global economic growth has reduced the ability for tin prices to rise to the levels of the pandemic. The decline in prices that occurred in early August, which was mirrored across the industrial metals complex, followed a range of worse-than-expected economic indices for H1 2022 being published in China. Manufacturing PMI figures for China have been inconsistent and moved above and below the 50-point mark, which indicates neutral growth, while in Japan the PMI figure has been below 50 from June onwards. The slowdown in manufacturing in these two nations in particular has weakened tin demand, as China and Japan are responsible for over 45% of global semiconductor exports.
Another reason for falling LME Tin prices is the rise in registered stocks in LME warehouses. As the chart above from ChAI Insight shows, Closing Stocks have risen significantly since May 2023 and, in doing so, have climbed to the highest level since April 2020. With such a rise in visible stocks of the metal, there has also been a shift in the position of investors on tin.
Looking at the change in positions of Investment Funds in the CoT reports is illustrative of the weaker demand for tin at present. In the week ending Friday 28th July, Investment Funds held 1983 Long positions to 475 Shorts. However, by the end of the first week of September, this ration had shifted to 1039 Long positions to 614 Short, showing the extent to which the bullish sentiment around tin was falling. In last week's report, the ratio is even closer; Investment Funds hold 875 Long positions compared to 786 Shorts. Since late July then, the number of Long positions has more than halved while the number of Short positions has almost doubled.
As noted by Andy Home for Reuters, the fall in tin prices comes at a time when supply faces a considerable risk. In early August, all tin mining was suspended pending a review in the semi-autonomous Wa State. The region lies within Myanmar which is the third largest producing country of tin in the world. Home also notes that the drawdown in Shanghai stocks since the pause of mining activity in Myanmar, as well as the declining production activity of tin smelters in China.
Going forward, semiconductor production will be a key indicator for the next upward run for tin prices. ChAI's current price forecast suggests that prices will rise again in H2 2024, and should demand pick back up before the supply situation in Myanmar is resolved, tin could be set for a rapid rise indeed.
By ChAI Predict
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