Commodities :: Opportunity in tin – small market but clear deficit Macquarie Research,

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Commodities Comment
Opportunity in tin – small market but
clear deficit
 Tin is the smallest of the LME traded base metals markets. Although demand
growth has slowed and supply has been rising, the market remains in a deficit
that, relative to market size, is the largest among the LME traded base metals
and belies the recent sharp sell-off in the tin price. Fundamentally the price
should probably be stronger.
Latest news
 LME base metals prices finished the week with a mixed performance on
Friday. Copper climbed by 3.3% with the cash price closing back above
$7,500/t, while nickel, aluminium and zinc also rose, with support from some
positive macro-economic data points, notably a dip in China’s CPI inflation to
6.1% in September and stronger than expected growth in US retail sales of
1.1% in the same month, which was the most robust reading in the world’s
largest economy since March. However, tin and lead prices dipped on
Friday. Over the week as a whole, price performance was mixed as improving
sentiment on the outlook for a possible solution to the sovereign debt crisis in
Europe contrasted with worries over economic growth slowing down in China.
Copper and lead posted the strongest gains of 2.5% while tin fell by over 5%.
 Precious metals prices were also mixed. PGMs and gold both gained on
Friday, and over the week as a whole, while silver slipped back by 0.5% over
both time frames.
 Physical markets for base metals have also seen different developments recently.
In China, Shanghai copper premiums remain robust with premium quotes of
~$150/t CIF, or more, which is 40%-50% more than a month ago, as buying
has been encouraged by the recent retreat in exchange prices. In contrast,
aluminium premiums are coming under some downward pressure in some
markets as changes along the forward price curve bring pressure to bear
on some of the carry trades involving aluminium inventories. However,
we do not think this will ultimately lead to any substantial increase in the
availability of metal to physical consumers.
 Several Chinese steel mills have been offered the option to buy iron ore in
Q4 2011 based on spot prices through the period, instead of more common
industry practice to price iron ore based on trailing average prices, according to
Reuters. This follows earlier press reports that Chinese mills have been seeking
to postpone shipments in some cases as short-term demand declines. This
is reflected in the sharp fall in spot iron ore prices this week, following the
Chinese Golden Week holidays. At the same time, some steel product prices in
China are continuing to fall, including rebar, as construction demand slows
and winter approaches in the north.
 A Peruvian union announced on Friday that it had broken off talks with
Freeport-McMoRan to agree to a new labour contract in order to resolve a
16-day strike at the Cerro Verde mine, which produced ~312,000t of
copper-in-concentrate in 2010. This was equal to ~2% of world output.
Elsewhere, Rio Tinto’s Q3 production results reported on Thursday had
provided another reminder, not that it were necessary, of the ongoing
struggle copper miners are meeting in seeking to supply demand.