With the spread of the novel coronavirus beginning to peak, the effect on the tin market is becoming clearer. Here we present the results of our snap survey of tin producers and consumers in China.
The second week of February usually sees smelters return to full production after the Chinese Spring Holiday Festival. Most Chinese smelters lower their output for the week-long holiday. In fact, typical Q1 refined tin production is around 2,300 tonnes lower than the average quarter. However, due to the virus outbreak, many delayed returning to work.
In an ITA survey of Chinese smelters, most private operations thought they would restart full production at the end of the month. Government-owned operations, including Yunnan Tin, returned as normal at the end of the extended holiday.
Around this, smelters are still attempting to navigate an unusually tight concentrate market. Whle we previously reported that the restart of mining at Baiyinchagan was being delayed, we also understand that imports from Myanmar are impacted by the virus. Miners are returning to work more slowly than normal as a precaution.
Logistics are the biggest bottleneck, with cross-provincial transportation at a standstill. Even if Myanmar mines were operating at full tilt, smelters in Gejiu – the main destination for the concentrates – would not benefit. According to our survey, the inflow of concentrates is completely blocked. Smelters without integrated mines are working through already low concentrate stocks.
Wuhan, the centre of the 2019-nCov outbreak, is a hub for high-end manufacturing. The city is home to major semiconductor and automotive producers, while the area produces around 9% of the country’s televisions. With Wuhan quarantined from the rest of the country, local companies simply closed.
Local governments across China extended the Spring Festival holiday by a week. On paper, much of the population returned to work on 10 February. News sources in the country, on the other hand, report that companies are allowing most to work from home.
Many migrant workers, returning from other provinces, are unable to return to work. Local governments are advising that these workers are quarantined for a further two weeks as a precaution. One estimate believes that most factories will operate at around 80% capacity for at least another week.
For many of the country’s major solder producers, however, this is not an issue. Guangdong province is home to a large proportion of these companies, but has the second highest infection rate of the provinces in China. We understand that the low number of migrant workers in Guangdong means that most will be operating at full capacity, having returned to work on 10 February.
Overall, most companies felt that business would return to normal again in March, with little effect on annual tin demand.
The same cannot be said for customers further down the supply chain. Major tin-using companies are reporting that many of their customers remain closed. In the automotive sector, CNN and Reuters have reported that high-profile companies, such as Renault and Nissan, have closed production plants across the globe due to their reliance on Chinese parts. In the electronics industry, one estimate placed the employee return-to-work rate at 20%.
In Europe, tin-using companies are already working through their stockpiles. Some, especially in the chemicals sector, are reliant on supplies from China. They could reportedly face serious issues if they don’t receive critical components on time.
Our view: While the immediate impact to the supply and demand of refined tin appears to be relatively small, the continued logistical backlog and sluggish return to work further downstream could slow global consumption in 2020. However, in order to make their GDP growth target for this year, the Chinese government are more than likely to stimulate the economy, lessening the impact of the virus.