Tin prices are being held at seven-month highs by a Jakarta market rule change that has all-but blocked exports from Indonesia, the world’s largest finished tin producer.

The price squeeze makes tin the best performer on the London Metals Exchange this year, helping to displace copper as the metal market darling and winning increased investor attention to the tin mining sector.

Export figures published by Indonesia’s Trade Ministry last week showed a collapse in finished tin exports to 786 tonnes, equal to an 88 per cent drop from August levels.

Cargoes have been blocked by regulations prohibiting shipments unless they are dealt through the country’s central commodities exchange, as part of efforts to formalise Indonesia’s tin trade and challenge the LME as the global tin price benchmark.

The challenge has stoked rising trader confidence in tin prices, with attendees polled at this month’s LME Week fleeing copper as their top metal pick. Macquarie Bank’s 2013 LME Week Survey showed that aluminium and copper are the metals that traders are most likely to short in the coming 12 months, whilst lead and tin are jointly the most popular long position, together garnering close to two-thirds of the vote.

Whilst a barometer of market sentiment, polls are as much a trailing indicator as a leading one and are often relied on by contrarians to signal saturated market consensus. Last year, copper comfortably won the top long spot with 55 per cent of the vote, but has lost 13 per cent since October last year. Over the same period, tin has gained over 15 per cent to $23,325 per tonne.

 

Price (USD

3-months

12-months

 

per tonne)

 

 

Copper

$7,205

5.10%

-12.70%

Tin

$23,325

21%

8.40%

Lead

$2,102

1.20%

-7.00%

Nickel

$13,910

-0.40%

-22.40%

Attendees this year were notably bearish on nickel, despite Indonesia being due to apply tightened controls to the nickel market from January 2014, with a flat ban on unprocessed ore. Russian nickel giant, Norilsk Nickel, estimates that a third of all production is cash flow negative at current prices, whilst Glencore and Vale are reported to be in discussions over a cost-saving merger of their operations in the Sudbury basin.

Equity investors, however, have embraced the tin market’s relative strength. Metals X, which produces 2.5 per cent of global tin supply from its 50 per cent share in the Renison mine in Tasmania, has risen 40 per cent in three months, doubling tin’s gains. “Everything in regards to the price moving forward is cream for us,” says executive director Warren Hallam. Operating costs of A$15,000 per tonne and the company’s attributable tonnage of over 3,500 means that per tonne price rises of $4,000 since mid-July equate to over $14m in profit uplift for Metals X. “We are certainly in the box seat for any global recovery,” says Hallam.

Hallam puts recent price movement into the wider trend of the international tin cartel of the 1980s, which pushed prices to the inflation-adjusted equivalent of $45,000 per tonne, such that majors granted the metal semi-precious status. “BP, Shell, Billiton; everyone was exploring for tin.

Anything that was any good was developed and mined.” The overhang created by the cartel’s collapse in 1985 has taken 25-years to unwind, he says, starving the industry of investment in new projects.

Explorers and developers have matched Metals X’s upside leverage. Stellar Resources, also focused on Tasmania, and Consolidated Tin Mines, which owns the Mt. Garnet deposit in Queensland, have jumped 25 and 40% since mid-July.

Analysts at Standard Bank have granted tin the rosiest outlook of all six leading base metals on the LME, but Macquarie’s Duncan Hobbs has warned of the inherent “policy risk” to regulation-induced shortages, given the ease with which restrictions can be reversed.

“The revival of the tin price brings a lot more investor interest into the sector and highlights in people’s minds that the tin market is tightening up,” says Peter Blight, chief executive of Stellar Resources. “If there is a risk of a policy reversal in Indonesia, I think it would have happened already.”

Buyers are increasingly registering on Indonesia’s central exchange, he says, with those producers holding out for an alternative contract becoming sidelined. “I think Indonesia is going to work through the changes, but I don’t think you’ll see production move rapidly back to the high levels seen during the first six months of 2013. On the demand side, it’s just a question of time before a bounce-back in electronics production drives increased tin consumption and we’re certainly seeing some green-shoots there.”

ASX-listed Tin Mining Companies: Developers and Operators
  Total Contained Resource Average Grade Jurisdiction Market Cap 3-month price performance 
Metals X 305,000 0.90% Tasmania A$223m 40%
Kasbah Resources 129,000 0.90% Morocco A$59m 36%
Consolidated Tin Mines 73,500 0.60% Queensland A$15m 40%
Stellar Resources 71,500 1.10% Tasmania A$12m 25%
*On a 100% basis.