Chinese exports of refined tin slowed in June as the arbitrage between the Shanghai and London exchanges narrowed.
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.