With low tin prices on both the London and Shanghai trading houses, Chinese miners are struggling to generate a profit, resulting in lower production of tin concentrate. Combined with mine closures earlier in the year, smelters in the country are finding it difficult to procure raw materials.
The tin price, having risen to highs of around US$ 21,500/tonne in March this year, has continually fallen since then, reaching US$ 16,425/tonne on 20 August. Similarly, prices on the Shanghai Futures Exchange have also declined, reaching the 130,000 yuan/tonne level. In China, these low prices have challenged the profitability of tin mining, reducing production and shipments of tin concentrate. As such, smelters in the country are struggling to operate. To entice miners to sell their raw materials, smelters are being forced to reduce their processing charges, which combined with sluggish sales of refined tin, is eroding profit margins.
To combat this, some smelters are planning to reduce production. After August, some smelters will continue to produce tin metal at a lower production rate than before, while several smelters in Jiangxi and Anhui are planning to stop production; these smelters plan to pause production for about ten days, although when they will restart depends on the market and the availability of raw materials.
Our view: From January to July, the output of refined tin in China decreased by about 8% year-on-year. However, in the first half of the year, China’s tin imports decreased by 20%, of which the amount of tin imports from Myanmar decreased by 28%. The output of domestic mines has also decreased by about 2,000 tonnes so far this year due to the closure of Yinman Mining’s Baiyinchagan mine in Inner Mongolia.
To reduce this deficit in raw materials, smelters stocked up on smelting slag. However, this stock has now been greatly reduced, and mines in Inner Mongolia are still unable to resume or start production within this year. In addition to the downward trend in imports of tin concentrate from Myanmar and decreasing cost margins, procurement of raw materials is forecast to become even more difficult for Chinese smelters. As such, some market participants are being forced to take stocks from the SHFE; stocks declined by 2,600 tonnes between late June and mid August.
