It also predicts that prices will increase gradually to average $22 000/t by 2020 as the global tin market posts sustained market deficits and inventories dwindle.
Short-term outlook (three-to-six months)
BMI does not not expect the price rally since May 2016 to last significantly into 2017, as its expects the tightness in the market to be almost “fully priced in”.
Nevertheless, prices will remain supported for the remainder of 2016 , with producers requiring tin in their final goods continuing to stockpile.
The tin market was in surplus from 2013, and although the surplus narrowed considerably in 2016 (BMI forecasts a surplus of 3.1 kt) as compared to 2015 (surplus of 5.3 kt), the price rally has run ahead of the fundamentals . This is because of a combination of speculative trading and positive investor sentiment, stemming from China’s economic stabilisation in H1, 2016 .
BMI has upgraded its tin price forecast to an average of $20 500/t in 2018, $18 700/t. This is due to the tin market falling into a deficit on the back of a stronger growth in global demand for the metal compared to production growth.
The research company expects the deficit to deepen from 0.9 Mt in 2016 to 9.4 Mt by 2020.
It has also turned more bullish towards metals prices in general for the next six to nine months as the continued and heightened fiscal support provided by the Chinese government to the economy will be a net positive for public infrastructure spending and industrial metals demand over the coming months .
Apart from its use in electronics and chemicals , tin is also used in soldering , which is a process in which two or more metals are joined tog ether by melting and putting a filler metal (solder) into the joint. This process is used in a range of industries including construction.
Furthermore, strong demand growth for consumer electronics , especially in countries including China, Taiwan, South Korea and the United States will keep the tin market tight, which will support prices . These countries are both leading global producers of consumer electronics as well as leading global consumers, and tin used in the manufacturing of electronics will ensure producers continue to stock up on the metal.
As an example, it forecasts total consumer spending on electronics in South Korea will increase at a compound annual growth rate (CAGR) of 2.0% throughout 2016 – 2020 , which is an improvement from recent years , when a combination of won depreciation, economic uncertainty and several major product diffusions reaching the end of
their cycles pushed growth into negative territory.
Indonesia remains key risk to outlook
With strong environmental restrictions on tin mining and smelting in Indonesia, production of the metal has been constrained in the year to date and BMI currently forecasts the country to register declining growth rates over the years to 2020.
Additionally, export restrictions proved to be effective, as President Jokowi pledged his support to crack down on illegal mining.
As of June 2016 , only 29 out of 47 smelters in Indonesia were operational. However, with rallying prices, producers could ramp up output while illegal miners could find alternative ways to resume mining and profit from the rally. This would result in an increase in tin supply from the country than currently forecasted, and would pose downside risks to tin price forecasts.