Recently, both international and domestic tin prices have reached new historical highs.

Data shows that the tin price on the London Metal Exchange (LME) has risen from a low of less than $15,000 per ton in March last year to over $30,000 in July this year, once breaking through $35,300 per ton, more than doubling; compared to the price of about $20,000 per ton at the end of last year, it has also increased by about 76.5%.

On August 11, the tin price in the Shanghai market peaked at 239,600 yuan per ton, an increase of nearly 60% compared to 151,800 yuan per ton at the end of last year.

With the rise in tin prices, tin mining companies in China have benefited greatly. Taking Yunnan Tin Company as an example: performance forecasts indicate that in the first half of this year, Yunnan Tin's operating performance has significantly increased, with expected profits of 930 million to 980 million yuan, a year-on-year increase of 360.31% to 385.05% compared to 202 million yuan in the same period last year. Yunnan Tin stated that the market prices of its main products, tin, copper, and zinc, have risen significantly year-on-year, and the production and sales of its products have also shown significant growth year-on-year, driving a substantial increase in the company's performance. As of the close on August 11, Yunnan Tin's stock price closed at 18.51 yuan per share, up 3.18%, an increase of 65.27% compared to the beginning of this year.

Why have tin prices repeatedly hit new highs?

 

Global tin mines are mainly distributed in China, Indonesia, Malaysia, Brazil, Bolivia, Australia, Russia, Peru, Thailand, and other places. The global tin mining locations are relatively concentrated, with Indonesia and Malaysia producing most of the overseas tin. Tin is an advantageous mineral resource in China, mainly distributed in Guangxi, Yunnan, Hunan, Inner Mongolia, Jiangxi, and other regions.

Tin is mainly used in solder, tin chemicals, tinplate, and float glass, involving industries such as electronics, home appliances, metallurgy, food, machinery, electrical appliances, automobiles, and aerospace. According to a report provided by Zhiyan Consulting, more than half of China's tin consumption is used in electronic solder, with the second and third largest application areas being tin chemicals and tinplate.

According to statistics from the International Tin Association (ITA), the top five tin producers in the world last year were Yunnan Tin Company from China, PT Timah from Indonesia, MSC from Malaysia, Minsur from Peru, and Yunnan Chengfeng Nonferrous Metals Co., Ltd. Yunnan Tin Company is the largest tin production and processing base in China, with a domestic market share of 47.7% and a global market share of 22.58% last year.

So, why have tin prices continued to strengthen and repeatedly hit new highs since the first half of this year? To explore the reasons, we analyze from both the demand side and the supply side.

From the demand side,it mainly lies in the fact that since the first half of this year, China's economy has maintained a good development trend, and the demand for tin in related industries has remained stable, with low inventory. Experts indicate that in China, the demand for tin is mainly concentrated in solder, accounting for 65%, followed by tin chemicals and glass. Solder, tinplate, and tin chemicals are widely used in automotive electronics, smart devices, home appliances, and other industries. The good performance in these areas in the first half of the year has provided reliable support for tin production and sales.

In the automotive sector, from January to July, automobile production and sales were 14.44 million and 14.756 million units, respectively, representing year-on-year growth of 17.2% and 19.3%. Although the growth rate has continued to decline by 7 and 6.3 percentage points compared to January to June, compared to the same period in 2019, production and sales have increased by 3.4% and 4.2%, respectively. The Ministry of Commerce stated that it will cooperate with relevant departments to promote automobile consumption across the entire chain. With policy support, the performance of the automotive market in the second half of the year is expected to be good.

According to the China Academy of Information and Communications Technology, in July, domestic mobile phone shipments reached 28.676 million units, a year-on-year increase of 28.6% and a month-on-month increase of 11.7%. The accelerated penetration of 5G phones, with shipments of 22.834 million units, accounted for 79.6%, which is the main driving force for market growth.

In the home appliance sector, from January to June 2021, China's cumulative air conditioner production was 123.283 million units, better than 104.149 million units in the same period of 2020 and also better than 119.788 million units in the same period of 2019. This year's overall demand for tin is better than last year and the year before, indicating that end consumption is strong.

Guotai Junan Futures Research Report states that from the demand perspective, the current downstream consumption of tin has entered a relatively off-season demand, which may not be sufficient to support tin prices to continue rising rapidly. Looking ahead, the report believes that tin prices may maintain high volatility at the end of the third quarter this year, or even show a slight downward trend.

From the supply side,compared to other varieties, domestic tin mines are relatively concentrated in Yunnan, Guangxi, Hunan, and other regions, while overseas production areas are also relatively concentrated, with Indonesia and Malaysia in Southeast Asia producing most of the overseas tin ingots.

From the perspective of overseas production areas, with the spread of the Delta variant in India, the pandemic has re-emerged in Indonesia and Malaysia, with Indonesia's daily new infections at one point exceeding those in India, reaching the highest in the world. The outbreak of the pandemic has severely affected the production of tin ingots. Fitch Solutions analyzes that "except for China, all major tin-producing countries still need time to vaccinate against COVID-19, so expanding global tin production will not be a smooth process. In fact, as of July, due to countries re-implementing lockdown measures to control the pandemic, tin production in Indonesia and Malaysia has been affected to some extent."

The offshore business of PT Timah, the world's largest tin producer.

With insufficient supply of tin ingots from Indonesia and Malaysia, the production of major importing countries has begun to recover, leading to a situation of supply not meeting demand in the entire market. As a result, both domestic and overseas refined tin prices have risen sharply, with spot premiums remaining high, even breaking historical highs in July.

Domestically, according to analysis from Shanghai Nonferrous Metals Network, the recent continuous rise in tin prices is mainly due to tight supply at the upstream mining end of the industrial chain. The power restriction policy in southern China has affected some production areas of tin ingots, with some enterprises in Guangxi reducing production by nearly 50%. Other major production area smelters have stated that the tightness of ore sources and low processing fees are related, which has suppressed production. Jin Investment Network also believes that in July, electricity use in eastern China became tense again, and Yunnan and Guangxi re-implemented staggered power restriction policies, affecting local tin enterprises' operations. At the end of June, the world's largest tin ingot smelting plant, China Yunnan Tin Company, announced a production halt for maintenance, leading to a temporary supply tightness.

Although Yunnan Tin has resumed production at the end of July, from the perspective of spot premiums, the current spot premium remains high. In other words, while other varieties have adjusted, tin, as the strongest variety in the non-ferrous sector in the first half of the year, has continued its strength at the beginning of the second half and has repeatedly hit new highs recently. As of August 11, the spot premium reached 3,200 yuan per ton, indicating tight spot supply, which has boosted tin futures prices.

A recent report provided by Fitch predicts that the global tin supply shortage may continue until the third quarter of this year. However, as the impact of the COVID-19 pandemic on mining production gradually decreases, the market's tightness will be alleviated, and it is expected that the high price trend of tin will continue until the end of this year, when tin prices will peak.

If Indonesia and Malaysia can maintain their current export levels despite the impact of the pandemic, and if domestic exports can remain at a high level, then in the short term, tin prices will show a situation of weakness domestically and strength externally. In the medium to long term, the global supply and demand for tin ingots will reach a balance, and there will be insufficient momentum for tin prices to continue to rise further.

What will the next ten years look like?

 

Data shows that the global tin ore production average annual growth rate from 2010 to 2020 was 2%. Fitch expects the global tin ore average annual growth rate from 2021 to 2030 to be 1.5%, which will be significantly lower than the average annual growth rates of other metals, including copper (3.8%), nickel (4.5%), iron (1.9%), and gold (3.2%).

According to Fitch, the lack of competition in the tin mining sector will affect the development of mining. Especially in major tin-producing countries, the tin mining industry is often dominated by one company.

Research shows that Indonesia's state-owned miner PT Timah holds the largest market share in tin concentrate production. In recent years, by using new technologies in its concession areas, the company has further consolidated its monopoly position in the industry. On the other hand, in Latin America, Peru's Minsur is the only tin miner in the country, while Bolivia's state-owned Comibol also dominates the country's tin production.

The report points out: "Due to the total investment in an industry being somewhat limited by the number of participants in that industry, a lack of diversified producers may lead to a reduction in the number of projects. Due to these two factors, the number of new projects in the industry is quite small. In the long term, the decline in ore grades and the lack of alternative projects will hinder production growth."

Fitch suggests that stricter environmental policies for mining are also the main factors leading to a slowdown in production growth. Two examples can illustrate this point: first, in June 2019, Malaysia's Perak state announced a suspension of new exploration licenses, which caused Australia's primarymining company Elementos to suspend its tin mining project in Temengor. At the same time, in Indonesia, protests from coastal communities may disrupt PT Timah's plans to expand tin mining offshore in the country.

Fitch believes that favorable price prospects and concerns about the supply-demand imbalance of tin concentrates will make management more likely to approve these projects and continue to promote those expected to achieve better economic benefits.

Fitch expects that rising tin prices will increase the profit margins of domestic producers in Myanmar, Peru, Australia, and Bolivia, which will drive the growth of tin production in these countries. However, due to various constraints, this growth will be limited. For future tin production, Fitch makes the following judgments:

China:Fitch believes that after three consecutive years of decline, China's tin production will remain stable. However, in the long term, due to tightening environmental requirements squeezing the profitability of mines, it is expected that China's tin production will stagnate.

Indonesia:Due to the impact of the re-implementation of lockdown restrictions in July, it is expected that the rebound in tin production in 2021 will be hindered. Fitch believes that the relatively slow rollout of vaccines in Indonesia means that production disruptions due to the pandemic will still be a significant risk in 2021.Fitch states that due to various factors affecting investment, it is expected that the country's tin production will remain stagnant in the longer term.The expected tin production for 2021 is 83,000 tons, while by 2030, production is expected to decline to 79,300 tons.

Myanmar:Despite the decline in ore grades, Fitch believes that Myanmar still shows potential for production growth in the medium to long term. In 2018, the new mining law implemented in Myanmar sparked interest from domestic and foreign mining companies, increasing the number of license applications for new mining projects, including tin. As of May 2020, the government had received over 3,000 mining license applications. Reports indicate that the government plans to approveapplications from domestic and foreign mining companiesfor about 160 large and medium-sized mines.

Peru:Fitch's data shows that due to previously low production levels, coupled with the effective support of the San Rafael mine's B2 tailings project for production growth, it is expected that tin production in 2021 will increase by 25.2%.