Why has the metals rally left tin behind?

Industrial metals are buzzing again. The London Metal Exchange (LME) index of base metals has risen from a trough of 2,049.00 in January 2016 to a current 2,859.20. Fears of a global, particularly Chinese, slowdown have been largely been assuaged over the intervening year.Attention is once more focusing on supply constraints across the industrial metals spectrum. Only one metal has been left behind.Tin, currently trading at $19,330 per tonne in London, is down 7.8% on the start of January.It is the only LME-traded metal to be in negative territory. What little fund money is committed to one of the LME’s least liquid markets has flown.The money manager net long position has halved to a one-year low of 1,173 contracts since the start of the year.In Shanghai, where the price has arguably held up better, market open interest has slid from over 24,000 lots to just 13,400 over the same time-frame.Why has tiny tin fallen so out of favour? Tin’s relative under-performance has coincided with the dissipation of an aggressive cash squeeze in London that lasted most of the fourth quarter of 2016.The LME’s benchmark cash-to-three-months spread spent most of that period in backwardation, the cash premium flexing out to $270 per tonne at one stage in November. That spread ended Friday valued at a contango of $39 per tonne.LME headline stocks have rebuilt from under 3,000 tonnes in November to a current 5,415 tonnes. Open tonnage, which is the metal available for contract settlement, has recovered from a desperately low 1,125 tonnes to 4,065 tonnes.But this recovery in stocks liquidity is highly relative. Two years ago LME stocks totalled over 10,000 tonnes.Moreover, after peaking at 5,995 tonnes in mid-February, the headline figure is falling again.The LME contract remains a very tight space. One entity controls 30-40% of available tonnage and another 40-50%, according to the exchange’s latest dominant positions report. It’s a moot point as to how long the easier tone in time-spreads is going to last.This relative rebuild in LME stocks has taken place against a backdrop of higher exports from Indonesia, the world’s largest tin-exporting nation.Exports jumped 180% year-on-year to 6,964 tonnes in January, although that dramatic percentage change is down to a low base last year, when Indonesian tin production was hit by the double-whammy of flooding and another turn of the licensing screws by the government.Exports over the last three reported months have been running strongly at an annualised 71,000 tonnes, which seems to reflect a robust production performance by PT Timah, the country’s largest producer, in the closing months of 2016.However, the long-term trend is still falling. Cumulative exports last year were 63,560 tonnes, down 9.4% on 2015.It was the fourth consecutive year of decline. PT Timah is aiming to lift production to 30,000 tonnes this year from 24,000 tonnes last year but it will do so in part by buying in more ore, potentially translating into lower output among Indonesia’s independent producers.Tin producers body ITRI said it expects “officially reported Indonesian refined shipments this year to remain broadly level with 2016”, albeit with “significant uncertainty” around that forecast.Set against the longer-term downtrends in both LME stocks and Indonesian shipments, tin’s fall from grace looks anomalous. * Andy Home is a columnist for Reuters. The views expressed are his own.