BMI View: Refined tin production in Asia will be driven by several d ynamics over the coming years. R ecent regulatory changes in Indonesia will cast a long shadow over China's refined tin sector , but C hina will remain the ke y driver of production increase s over our forecast period. Elsewhere, Thailand is slowly inking a large r presence in the tin market , while Malaysia's tin sector continues to stage a gradual recovery. Encouragingl y , price-supportive action from the Indonesian government will continue to incentivise domestic production over the medium-term.
We believe refined tin production in Asia will be fuelled by several dynamics over the coming years. We expect China and Thailand to account for the bulk of production increase , while Malaysia's tin sector undergoes a gradual rec overy over the coming quarters. Despite the imposition of tighter beneficiation standards in Indonesia over the past month s , we believe price-supportive action from the Indonesian government will continue to spur domestic production over the medium-term.
China: Burdened By Indonesia's Policies
While China will remain a prominent player in the refined tin industry, we believe the country is set to experience modest growth in tin production over the coming years. There is a relatively scarce pipeline of expansion plans from major producers including Yunnan Tin, Yunnan Chengfeng and Guangxi China Tin.
|Global - Refined Tin Production By Country (2012)|
Crucially, recent regulatory changes in Indonesia will cast a long shadow over China's refined tin sector. In a bid to move up the value chain, Indonesia, the world's top exporter of refined tin, prohibit the exports of tin ingots with purity levels of less than 99.9% from July 1. This ruling is bound to take its toll on Chinese refiners who imported around 50% of the metal ore from Indonesia for the production of high-grade tin in 2012. Although China may shift its attention towards Malaysia for supplies of low-grade tin, shipments from the latter are unlikely to be forthcoming since Malaysia also relies on imports from Indonesia.
|Reliant On Indonesia|
|China - Refined Tin Imports By Country (2012)|
Thailand: An Emerging Force...Somewhat
The significant increase in Thailand's refined tin production of recent months has caught us by surprise and we have subsequently, upgraded our growth outlook for the country. R efined tin output in Thailand surged by 31.3 % year-on-year (y-o-y) in H113, to reach 14. 7 thousand tonnes (kt) in June.
|Thailand Gaining Ground|
|Select Countries - Refined Tin Production (% chg y-o-y)|
Indeed, we expect Thailand to account for the second-largest increase in Asia's tin output over our forecast period. However, the opaqueness of production details from smelting and refinery firm, Thaisarco, suggests to us that our production forecast for Thailand may ultimately prove to be too optimistic .
|Pillars Of Strength|
|Select Countries - Incremental Refined Tin Output & Growth|
Indonesia: High Prices To Incentivise Production
Apart from China and Thailand, Indonesia will be another key driver of growth in refined tin production. The country is the world's second-largest refined tin producer, accounting for around 20% of global output in 2012. Despite the tighter beneficiation rule of recent months, our core view remains that price-supportive action from the Indonesian government will continue to incentivise domestic production over the medium term.
|Heavy Presence In Seaborne Market|
|Global - Refined Tin Exports (LHS) & Imports (RHS), (2012)|
Underpinned by its dominance in the seaborne market, the Indonesian government has on several occasions banned the export of refined tin in order to limit supplies and support prices. This cartel tactic, together with tin's primary use in the electronics sector, lead us to believe that tin prices will remain an outperformer in the industrial metals complex over the coming years ( see 'Tin Outperformance To Continue', August 14). We forecast prices to average US$22,500/tonne in 2014, before making a sustained move higher to eventually reach US$25,000/tonne in 2017. This compares to more subdued growth forecasts for major metals such as copper, iron ore and steel.
|Indonesia Enjoys Tight Grip On Prices|
|Indonesia's Refined Tin Exports (LHS) & Three-Month Tin, US$/tonne (Weekly Chart, RHS)|
Furthermore, anecdotal evidence suggests that the increase in tin purity level could bring about a 50-100% increase in premium price for Indonesian producers. We believe this will prompt a growing number of local producers to enhance their mineral processing technology in the coming quarters.
Malaysia: Gradually Recovering
While refined tin production in Malaysia has declined by 6.2% y-o-y in 2012, we expect output growth to gradually recover in the coming years as Malaysia Smelting Corporation (MSC) embarks on plan to enhance its smelting capacity in Butterworth ( see 'MSC Takes Charge, With Risks To Upside', June 18).
|Limited Growth Prospects|
|Global - Top 10 Refined Tin Producers (tonnes)|
While lower intakes of tin concentrates from Africa have dragged on MSC's production over the past year, this is unlikely to be a major cause for concern. The company is evaluating several tin prospects in Australia and South East Asia to better insulate itself against supply disruption from Africa. Given the wave of global asset disposal in the mining industry, we believe MSC will successfully tighten its grip on tin mining assets. Nonetheless, the depletion of reserves will remain a major constraint to further development in Malaysia's tin sector. Indeed, the former glories for tin mining are over following the collapse of the industry in the 1980s.
Risks To Outlook
The lack of tin mining projects on the horizon is one major downside risk to our production forecast. With conventional sources of mine financing drying up, an increasing number of junior explorers will struggle to secure funding for new projects. Unsurprisingly, tin miners are finding access to bank loans especially tough. Long-term hedging is impossible for the metal since the LME futures curve only extend 15 months forward, compared with 123 months for copper.
|Heavy Exposure To Solder Segment|
|Refined Tin By Application (2011)|
While not our core scenario, we caution that tin ' s declining use in the solder segment might induce downward pressure on prices and lead to a wave of project cutbacks over the long term. According to the International Tin Research Institute (ITRI), the share of the tin market driven by solders has declined from a peak of 54% in 2007 to a little under 52% in 2011. Apart from cyclical weakness in the global electronics industry, there is a growing trend towards products and assembly techniques involving smaller quantities of solder.
|f = BMI forecast. Source: BMI, WBMS|
|% chg y-o-y||0.4||6.4||4.5||-5.1||3.9||2.1||3.1||2.9||-0.3|
|% chg y-o-y||-6.5||-1.2||13.7||6.8||-11.2||3.7||5.8||6.1||4.2|
|% chg y-o-y||-12.1||23.0||1.7||-7.1||21.9||7.1||5.1||4.3||4.0|
|% chg y-o-y||15.1||6.3||4.1||-6.2||-11.5||1.8||3.1||4.9||4.8|
|% chg y-o-y||-25.0||11.1||60.0||0.0||3.5||7.4||8.9||6.8||7.9|