Despite tightness in the domestic Chinese market, tin exports rose month-on-month in July.

Chinese offshore tin trade is determined by the arbitrage between the local price on the Shanghai Futures Exchange (SHFE) and the benchmark price from the London Metal Exchange (LME), used by the rest of the world.

With the country’s – and the world’s – largest producer, Yunnan Tin, unable to produce metal in July, consumers in China were forced to pay higher prices or to turn to other sources of supply. This included SHFE stocks, which fell some 400 tonnes over the course of the month.

However, the ex-China market experienced rapid price rises in July due to significant supply challenges. Major producer MSC remains below full capacity, having been closed as part of Malaysia’s sweeping coronavirus control measures. LME Settlement prices reached US$ 35,965/tonne at the end of July, an increase of US$ 3,175/tonne compared to the start of the month.

Despite the price action across the two exchanges resulting in a closed arbitrage during July, exports were still high. This is likely due to delayed shipments under contracts that were negotiated when the arbitrage was stronger.

Overall, some 2,276 tonnes of refined tin were exported in July, compared to just 135 tonnes entering China. Net exports – 2,141 tonnes – were up some 31% month-on-month.

Our view: Although China’s market may have been expected to loosen during August, there are several indicators that it remains tight. Although major producer YTC is now back at full capacity, SHFE stocks halved between the end of July and 20 August.

On top of this apparent demand for stockpiled metal, the SHFE did not experience such a sharp fall in prices as the LME did. LME Settlement prices fell some 9% (~US$ 3,200/tonne) on 19 August as commodity trading advisors (CTAs) and funds unwound long positions. Comparatively, the main SHFE contract fell just 4%.

With the SHFE price now much stronger than that of the LME, the arbitrage may swing to encourage imports into China. This could encourage more production in Indonesia, one of the major offshore sources of tin for China.