Apr 20, 2015

Myanmar Tin Exports Send Prices Lower

Tin prices are definitely not in the spring mood.

Prices for the metal, which is used mainly in the consumer-electronics industry, hit 5½-year lows on the London Metal Exchange this past week, and the fall is largely the result of a flood of supply from a once-secluded Southeast Asian country.

Myanmar has been shut off from the outside world for most of the last 60 years as an austere military regime held a tight grip on the economy. The country began to open up in 2011, and the tin market has been one of the first to feel the impact.

Tin’s price drop is due to a “huge increase in supply into China from Myanmar,” said James Sutton, a portfolio manager on the global natural-resources equities team at J.P. Morgan Asset Management.

The three-month tin contract traded on the London Metal Exchange plunged more than 9% to $13,600 a metric ton for a time during early trading in Europe on Friday. The metal settled at $14,850 a ton, marking its eighth consecutive decline, leaving the price at the lowest level since September 2009. The price is down 22% from the beginning of the year.

“There are clearly relatively easily exploitable tin reserves which are being mined from a variety of relatively basic mines,” said Stefan Ljubisavljevic, an analyst at Macquarie Capital. MQBKY -1.85 % Myanmar’s contribution to global supplies has gone from nowhere a few years ago to around 21,000 tons of tin ore a year, most of which goes to China, he said.

The world’s largest tin exporter, Indonesia, has been struggling to respond. The country’s biggest shippers of tin into the global market agreed to limit exports to 4,500 tons of metal a month for a period of three months, starting at the beginning of April, in an effort to stop prices from falling.

But Indonesia shipped 6,930 tons of tin in March, the highest level in three months, according to trade ministry data.

Analysts said companies may have rushed to export more before the self-imposed ban began.

“The last time exports were suspended was at the end of 2011—though the self-imposed export ban held for only two months,” said Commerzbank AG CRZBY -2.06 % in a research note. Commerzbank expect the price of tin to fall to $12,000 before any recovery.

The Indonesian government has suggested it may impose yet more controls to slow the pace of exports. Last year, it began requiring exporters to sell through a local exchange, in a move that was widely seen as an effort to slow exports, reduce smuggling and shore up prices for the metal.

“The tin price is still very low due to [the] supply glut,” Indonesian Trade Minister Rachmat Gobel said on April 13. The producers’ restriction “hasn’t been successful” in driving up tin prices, he said.

There have been other piecemeal efforts, such as imposing additional bureaucratic burdens on exporters, but overall their effect has been negligible.

“Nobody believes Indonesian policy, which means no one believes the surplus is going to go away anytime soon,” said Mr. Ljubisavljevic.

Demand for tin is still growing. The electronics industry accounts for about 50% of global tin demand and, according to the International Tin Research Institute, it remains robust.

Yet the pace of expansion is relatively meager: Macquarie sees demand growing about 2% a year over the next five years.

“From a fundamental point of view, prices below $14,000 are clearly not justified, but as long as short-term-oriented market players or funds are selling, then the price will probably go lower as momentum is still there for lower prices,” said Daniel Briesemann, a metals analyst at Commerzbank.

Source: Wall Street Journal