The stockpiling efforts were initially announced back in April, although only the total for all base metals was announced – some 800,000 tonnes. Detailed plans for the base metals and some rare earths emerged via Reuters in mid-July.
The stockpiling drive was proposed at the height of the coronavirus-related downturn in demand, when many smelters – across all base metals – were struggling. The proposed incentives aimed to alleviate some of the financial issues.
The Yunnan government set aside RMB 1 billion yuan to cover up to 80% of interest paid on loans, with base metals used as collateral. The scheme would allow producers to borrow cash to cover operating costs while demand was low.
Schemes like this are not uncommon in China. At the height of the 2008-2009 financial crisis, the Yunnan, Guangxi, and Hunan provinces all proposed similar stockpiling measures. However, even during these difficult times, only 6,000 tonnes of tin was stockpiled by Yunnan Tin.
Our view: The issue with stockpiling efforts is that participating companies can lose money if the tin price increases. With the stockpile lasting for a year, and tin currently testing its year-to-date high, producers are unlikely to be willing to participate in the scheme.
Currently, only one tin producing company is currently considering using the Yunnan government’s scheme. However, should this producer choose to participate, the stockpiled material will likely only amount to a few thousand tonnes, rather than the headline figure of 40,000 tonnes.
As such, we do not believe that this stockpiling effort will affect the tin market significantly this year, or next year when the material is released.