China’s imports of refined tin halved in June as the large arbitrage waned amidst weaker demand for the metal.

In September 2021, prices on SHFE overtook the LME to open an import arbitrage, encouraging metal into China. With the global supply of tin tight during this period, little material made its way to the world’s largest consumer of the metal. However, as the average arbitrage reached historic levels, the metal soon followed. Chinese imports of refined tin hit a new record in May 2022, with 5,521 tonnes entering the country.

However, as negative macroeconomic factors – such as inflation – have hit the global economy, demand for tin has weakened. With now-surplus imported tin in the market, the backwardation between the spot price and the price of the main futures contract eased from over 8,000 yuan/tonne to 2,000-3,000 yuan/tonne. The arbitrage followed in June, which saw imports of metal fall by some 50% to 2,757 tonnes.

Despite falling demand for tin and the closure of the majority of smelters in June-July, customs data shows that Chinese imports of tin-in-concentrate rose in June. ITA estimates that roughly 4,800 tonnes were imported in June, up 24%. Of this, nearly half (46%) originated in Myanmar, whose exports doubled month-on-month. Imports from other countries dropped 7% to an estimated 2,600 tonnes.

Our view: The significant imports of refined tin into China were a useful sink for surplus metal in the second quarter. Much of the 11,558 tonnes imported during the second quarter of the year came from Indonesia (84%). Private smelters rapidly ramped up production to take advantage of the high outright tin price and wide arbitrage. However, as the price has fallen and the opportunity closed, these smelters have slowed their output.

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Chinese imports of tin ores and concentrates from neighbouring Myanmar dropped considerably in April as the closure of a major port prevented trade.

China imported some 15,811 tonnes of ores and concentrates in April according to the latest customs data. Some 60% of this material originated in Myanmar, totalling 9,448 tonnes. In tin terms, Myanmar contributed some 2,900 tonnes in April. However, this marks a significant drop for Myanmar, both in terms of total tonnage and market share.

Myanmar has typically commanded some 90% of China’s monthly tin concentrate imports since ITA began tracking the data in 2015. However, the country’s market share has been falling since late 2020.

China has looked to move away from sourcing solely from Myanmar, primarily due to supply disruptions associated with the COVID-19 pandemic. This has looked a prudent move, with further interruptions in April.

The major port of Menglian (Meng’a) was closed for over a month between 8 April and 10 May due to the local COVID prevention policy. Tin-in-concentrate exports from Myanmar dropped by some 57% month-on-month as a result. However, the drop in demand for tin concentrates was not limited to Myanmar. Total tin-in-concentrate imports in April fell by some 45% month-on-month.

According to local traders, smelters have begun turning away tin concentrate due to recent weakness in the tin price. Refined tin producers in the country struggle to hedge their output due to the structure and liquidity of tin futures contracts. Currently, smelters prefer to only produce material that has been purchased on long-term deals.

The lower domestic production in April resulted in a wide arbitrage between the SHFE and LME tin prices. This encouraged imports of refined metal into China, with some 3,280 tonnes passing through the country’s ports during the month. This is a recent record, last exceeded in September 2012. This also represented a 69% increase compared to March.

Our view: Demand for refined tin has deteriorated in China as the COVID prevention policy has locked down parts of the country. Weakness on the supply side has exceeded it so far this year – net imports are the highest since 2013. However, the arbitrage between the SHFE and LME prices is narrowing, with some traders already reporting that the opportunity has now gone.

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China imported some 28,986 tonnes of tin ores and concentrates (gross weight) in March 2022. This material was estimated to contain some 11,100 tonnes of tin, up 85% both month-on-month and year-on-year.

Some 74% of the estimated tin content came from Myanmar, totalling roughly 6,700 tonnes. This marks a significant increase on February’s total (72%) and year-on-year (49%). Imports from other countries were also up month-on-month (110%) and year-on-year (193%). Significant volumes of concentrate were shipped from Australia and the DR Congo – two usual sources – but also from Thailand (some 510 gross tonnes).

Refined tin trade, both in and out of China, also hit highs in March. Some 1,946 tonnes of metal were imported in March, with 1,224 tonnes moving in the opposite direction. Indonesia was the primary source of imported refined tin (1,831 tonnes), while exports were primarily to Europe (Italy and the Netherlands) or elsewhere in Asia (South Korea and Taiwan).

Our view: High tin prices in China during March encouraged significant imports of tin concentrate and refined tin metal. Imports from Myanmar maintained their high level during the month, while imports from the rest of the world jumped.
Although local outbreaks of COVID have been hindering shipments of tin concentrate from mine sites in Myanmar and have closed one of the port towns (Menglian), they have had little effect on the volume shipped to China. Instead, local Myanmar government sales of tin concentrate have been supporting volumes.

Refined tin imports spiked in March to the highest since July 2020, but came in under our initial estimate of 3,000 tonnes. It is likely that some material was delayed at ports and will arrive in April instead.

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The gross weight of imports into China totalled some 39,989 tonnes in January 2022, some 200% higher than in December 2021. February’s total was 19,755 tonnes; although this was down 51% month-on-month, this was still a 95% rise compared to a year earlier.

Some 90% of the total imports were from Myanmar in January, with 79% from the country in February. In terms of contained tin, some 9,000 tonnes were imported from Myanmar into China during the first month of the year. This total was more than triple that in December, and nearly twice the 12-month rolling average. Imports in February from Myanmar contained just 3,900 tonnes of tin, still above average.

Over the last year, China has increasingly looked to diversify its imports of tin-in-concentrate, rather than just relying on Myanmar. Imports from these sources – primarily the DR Congo – totalled some 2,000 tonnes and 2,100 tonnes of contained tin in January and February respectively. This was little changed from December (1,900 tonnes).

On the refined tin side, China imported relatively little metal during the January-February period, despite a wide arbitrage. Just 774 tonnes of refined tin were imported during the two-month period, with 1,247 tonnes flowing in the other direction.

Our view: Much of the January increase in tin-in-concentrate imports has been attributed to the clearing of a backlog at the border with neighbouring Myanmar. Multiple closures affected trade during November and December, leaving significant stockpiles of concentrate at the border. A further lockdown from 24 March will close the major city of Panghsang until 8 April. However, the main port of Menglian will remain open and we expect tin trade to continue uninterrupted.

Given the wide paper import arbitrage of more than US$ 3,000/tonne, it is perhaps surprising – at first glance – that China did not import more refined tin during the first two months of the year. However, the country was closed for several weeks during February, leaving little time to secure material for delivery. On top of this, output from Indonesia (a common trade partner) was anomalously low in January, leaving little material to purchase.

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Tin trade between China and Myanmar is set to be disrupted again after two new COVID cases were confirmed in Panghsang, Myanmar.

Tin production in the Man Maw area of Myanmar, one of the most significant areas in the world, passes through the city of Panghsang on its way to China. From Panghsang, trucks pass through the Chinese border town of Menglian before heading to Gejiu for smelting and refining.

According to a statement released on 25 February, Menglian has ceased to allow trucks from Panghsang through. Due to China’s Zero COVID policy, even a single case of COVID is viewed as a risk. Panghsang will be locked down between 1 and 5 March for all residents to be tested for the virus. Once the scale of the outbreak has been determined, the local authorities will review the closure of the two towns.

Our view: Before the latest lockdown, supply of tin concentrate had been slowly improving as backlogs cleared. In the period between the announcement and the closure of Menglian, shipments increased significantly as traders looked to get as much material into China as possible. Around 400-500 tonnes of tin-in-concentrate was estimated to have passed through Menglian in one day due to the rush, combined with recent higher grades of tin concentrates.

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Despite strong exports to China in October, the outlook for tin supply from Myanmar is weakening due to another outbreak of COVID-19.

The latest data from China’s customs office suggests that the country imported some 6,000 tonnes of tin-in-concentrate in October, up 30% compared to September. Of this, some 4,300 tonnes were from neighbouring Myanmar, up 28% month-on-month.

In September, tin shipments were delayed due to limited transportation availability amidst strong demand for rubber. However, logistics improved in October, with container weight limits lifted to 60 tonnes per container rather than the previous 32 tonnes, allowing for greater tin exports.

Nearly a quarter of the material exported in October is thought to be from government stockpiles (some 1,500 tonnes), according to local ore traders. Mining in the country remains constrained.

However, the outlook is worsening, with another COVID outbreak in the country forcing China to stop all trade through the Menglian port to cease. The port was closed on 10 November and was expected to reopen on 19 November. The situation has not improved, however, and so the closure has been extended for a further 14 days – possibly into early December.

Our View: The closure of the main tin trading port between China and Myanmar in November could see the monthly total fall considerably. However, this material is only likely to be delayed, and so the December total could jump significantly.

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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.

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The arbitrage arises from differences in the valuation of tin between the two exchanges. Typically, the Chinese import price – the LME price, minus taxes and shipping – is higher than the local price for tin, enabling local traders to sell their tin on the international market.

Over the last two years, however, the arbitrage has been open in the other direction. Traders have been encouraged to import tin in China, something that Indonesian producers have taken advantage of, now regularly exporting some 13% of its tin into China. While the Shanghai Futures Exchange has a higher minimum quality requirement for refined tin than the LME, this is not a major issue for most brands.

Over the last few months, however, the strong SHFE price has greatly exceeded the import price. With the arbitrage at record highs, China has also been exporting significant amounts of refined tin. In fact, so far this year, net exports of tin were some 5,830 tonnes. Over the same period last year, China had imported some 7,228 tonnes.

However, the domestic market tightened in June, leading to higher local prices. With the resulting weaker arbitrage, traders only exported 1,792 tonnes of refined tin during the month. This was down some 41% from May, when China exported over 3,000 tonnes.

Our view: Continued power supply issues in the main tin producing region of China, Yunnan province, reduced output during June. On top of this, the world’s largest producer, Yunnan Tin, began maintenance towards the end of the month. This tightened supply of refined tin in the Chinese market, closing the arbitrage.

However, Yunnan Tin will finish its maintenance around the beginning of August, bringing significant supply back to the market. If ex-China supply continues to struggle during the most recent wave of COVID infections, China may increase its exports once again.

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Usually, the country augments its significant domestic supply of metal with material from other producers. The majority of the metal typically arrives from Indonesia; in January and February, imports from the country exceeded 1,000 tonnes. Compared to the two-month January-February period in 2020, total metal imports were up some 20%.

However, China imported some 75% of the metal in January. Just 459 tonnes entered the country in February, the lowest since August 2020.

The metal trade between China and the rest of the world is dictated by the arbitrage – the difference between the LME price and the price of metal once imported into China. Over the last two years, the positive arbitrage has been strongly in the favour of imports. However, due to the tightness in the ex-China market since the start of the year, LME prices have far exceeded those in China. The now-negative arbitrage has far exceeded the previous peak – ~US$ 4,000/tonne in October 2016 – reaching US$ 7,000/tonne in February.

As a result, exports from China increased significantly in the first two months of 2021. Outflowing tin ingots totalled 481 tonnes in January; 731 tonnes left the country in February. The combined total (1,212 tonnes) was 133% higher than the total last year.

Our view: Although China has typically been a net importer of metal over the last two years, the arbitrage can sometimes incentivise net exports. The net export of 273 tonnes in February was the first such flow since August 2020. China has not consistently exported metal since August 2019, but if ex-China material remains in tight supply, this may become a more common occurrence.

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In terms of gross weight, reported in the latest customs data, China imported some 20,500 tonnes over the January-February period. Nearly 17,000 tonnes of this material came from Myanmar. Compared to 2020, this represents a 27% decline. With an estimated concentrate grade of 25% Sn (27% Sn in 2020), the total tin content of the Myanmar imports over the two-month period was down some 31% year-on-year.

However, imports from other countries made up half of this deficit. Continued imports from the DRC and Australia, as well as a ~400 tonne (gross) package from Bolivia helped push inflows up to some 1,800 tonnes in February. This follows a 1,650 tonne inflow in January. Compared to 2020, imports from countries excluding Myanmar are actually up 126%.

Our view: Imports from Myanmar during January and February 2021 were under pressure from three factors: a wave of COVID-19 infections in the country, the Spring Festival holiday, and political turmoil.

In January, tin concentrate shipments through the border town of Menglian were interrupted for two weeks due to an outbreak of COVID-19 at the main mining areas in the country. Transportation was further suspended for 10 days during the Spring Festival holiday in February. On top of this, the political turmoil caused a temporary closure of the Ruili border town.

Both border towns have now reopened. We expect tin shipments from Myanmar to return to around 3,500 tonnes (metal content) in March. In 2020, March saw a significant rise in imports, and so we still expect a small decline annually. The high tin price is likely to incentivise more low grade ore production, while we do not expect further disruption to supply due to the ongoing political changes.

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