Tin stirs the pot

The closest most people get to tin is holding a pewter mug, but if recent metal-market activity is a guide then tin might be making a comeback, especially for its use in new technologies, and because it is on the US Government’s list of 35 strategically important metals.

Once one of the world’s most widely-used metals, tin has suffered a series of setbacks, firstly because other materials have stolen some of its markets such as aluminium for packaging, and secondly because a 1980s financial scandal killed its investment appeal.

Rarely seen as a metal in its own right because it is soft and has a low melting point (232 degrees Celsius), tin was widely used in a number of alloys such as bronze (copper and tin) as far back as 3000BC, and much more recently in pewter (tin and copper, but once with lead), and more recently as a solder in electrical appliances – your mobile phone and computer probably have some tin in them.

As well as losing market share to other materials, tin developed a poor environmental record with much of it mined in Malaysia and Indonesia using hydraulic techniques which essentially meant hosing down the side of a hill, or floating a dredge across low country, leaving a scarred countryside such as what happened in north Queensland until the mid-1960s.

But what really drove tin into obscurity, especially from an investment perspective, was an attempt to control the price through a cartel called the International Tin Council (ITC) which represented tin producing countries, led by Malaysia.

Like all cartels, the concept was to achieve a high and relatively stable price to aid producers to the cost of consumers, much like the most infamous cartel of all, the Organisation of Petroleum Exporting Countries (OPEC).

Successful in the 1950s and 60s, the ITC ran into problems in the 70s when demand for tin started to decline and maintaining a steady price forced the ITC to start a stockpile, initially using ITC member funds before resorting to bank debt.

If that sounds like a replica of Australia’s wool reserve price scheme, and the creation of an unsustainable stockpile which led to a 1991 financial disaster for wool growers, that’s because the tin caper was a forerunner to the wool scheme.

Tin’s crisis moment came six years before wool when, in 1985, the ill-conceived cartel collapsed, along with the tin price which plunged from more than US$17,000 a tonne to less than $6000/t, bankrupting 14 London metal traders and forcing the mine closures the cartel had been set up to save.

Tin today is selling for around US$19,500/t, not much higher than it was more than 30 years ago before the ITC’s market rigging unwound spectacularly.

Australian tin production has contracted to focus on a handful of mines, mainly close to Zeehan in Tasmania and a number of exploration prospects in Queensland.

WA’s best-known tin mine was at Greenbushes which is the same as what has become the world’s biggest single source of lithium, with tantalum as a useful by-product.

What’s put tin back on the radar screen of investors is the combination of persistently low prices which have killed off a number of mines, the inclusion of tin in the US strategic metals list, and a sniff of a crisis emerging in the once dominant Malaysian tin industry.

Macquarie Bank, one of the few investment banks to follow tin, can sense a change brewing as the fundamentals of the industry appear to be shifting with supply dwindling and tin smelters in Asia start to run short of feedstock – a common precursor to a higher metal price.

The first hint of something brewing in the tin market came in a June 10 story on the Reuters news wire which said Malaysia Smelting Corporation (MSC) was delaying shipments of finished metal “due to a shortage of concentrate” – upgraded tin ore. MSC denied the report saying it was business as usual.

But what Macquarie found a few days later was that Australian tin concentrate which had normally been shipped to Malaysia was finding its way to China to meet a shortfall in local output and a decline in exports from neighbouring Myanmar.

The core problems for tin are its loss of markets to other materials and price which is not far above the level just before the ITC collapsed in 1985 which has dried up exploration for the metal and discouraged the development of new mines.

In Macquarie’s view, a situation is developing which it describes as what happens “when bear markets ignore crumbling supply”.

Not only is supply falling, but the global stockpile held in the warehouses of markets such as the London Metal Exchange have all but dried up, falling from a recent peak of more than 25,000 tonnes in the year 2010 to around 2000t today.

Macquarie said it is “not particularly encouraged” by demand conditions for tin but the many weaknesses across the supply-side “invite interest”.

“Moreover, having been identified as a strategic metal in the US’s list of 35 the more protracted the economic struggle (U.S. v China trade war), the more likely it is that stockpiling will begin among rival interests, tightening availability even further,” the bank said.

No-one expects a sudden tin renaissance, but it is a metal with properties well suited to an increasingly electrified world.

The pewter mug might be a relic, but the solder in your computer and phone, and every other electric powered gadget needs a little tin – and there are lots of gadgets in the world.

Metals X

Once a star among Australia’s small field of mid-sized miners, Metals X has been sold down over the past 18 months after encountering problems in its copper business and because of investor doubts about its ambitious plans for a big nickel mine in central WA.

Tin operations in Tasmania, which are half-owned by China Yunnan, have been a happier story, complete with recent exploration success and a resource upgrade at its Renison tin mine.

Ranked as one of the world’s highest-grade tin mines, Renison is generating strong profits whereas the Nifty copper mine in WA has been struggling.

The net result of the mixed performance is a share price which has fallen by 80 per cent from a peak of $1.21 in January last year to latest sale at 24c, a price which values the company at a modest $166 million.

Metals X management is confident that problems at Nifty are being overcome and that Renison after a 22 per cent increase in its tin resource, has an excellent long-term future.

As important as the increase to 263,000 tonnes of contained tin in the resource at Renison might be, an equally important development is an increase in ore grade from 1.31 per cent tin to 1.5 per cent.

The grade could rise further as exploration continues around the Bell 50 discovery zone where grades as high as 7.65 per cent tonne over a 10.3 metres intersection have been encountered.

If forecasts of a tin price recovery are correct, and Macquarie sees the price rising by 12 per cent to $US22,000/t by the end of the year, and then up to $US23,700/t in the year 2021, Metals X could enjoy a share price re-rating.

Macquarie’s view is that the stock is under-priced at its current level and could almost double to around 47c over the next 12-months.