TIN TODAY: Set for second weekly price gain

Analysis

  • The LME three-month tin price has enjoyed follow-through buying pressure on Friday January 17 and it is set for its second consecutive weekly gain.
  • A positive close above the 200 DMA will give recent buyers extra confidence in maintaining their bullish exposure.
  • With its price action still within an upward channel (see chart), more upside remains possible, with the 38.2% Fibo in sight, followed by the 50% Fibo of the Feb 2019 high-August 2019 low. 
  • But the technical indicators are starting to look short-term overbought and at risk of trending lower if selling emerges.

Macro drivers
The signing of the “phase one” trade deal between the United States and China has removed some of the uncertainty among global investors, businesses and consumers that hampered growth for much of 2019. Growth in investment confidence should kick-start activity among businesses and consumers, which should be positive in 2020 for all base metals, at least in the first half of the year.

Chinese economic data shows the economy was stabilizing late last year after a turbulent start to 2019. Fourth-quarter gross domestic product (GDP) growth was 6% while full-year growth for 2019 was 6.1%, well within the expected range. China’s industrial production was up by 6.9% year on year in December, beating the expected 5.9%, while retail sales growth was robust at 8%, better than the forecast 7.9%.

We think recent macroeconomic tailwinds will remain supportive for risk assets. While this period of calm and certainty is welcome in the near term, market focus will turn to the next risk events: The start of “phase two” trade negotiations between China and the US; whether US President Donald Trump administration’s switches focus to the European Union; if the United Kingdom exits the European Union when expected; and whether Chinese demand return after the Lunar New Year celebrations.

On the mining front, delays to the restart of Yinman Mining’s Baiyinchagan mine has raised fresh concerns about effects on Chinese domestic tin concentrate production in the short term. Production from the above mine is an estimated 7,000 tonnes per year of tin in concentrate or 8% of China’s domestic mine production. The International Tin Association reported that the restart will now only take place at the start of February. First-half production at Metals X’ Tasmanian tin mine is likely to be 1,000 tonnes lower than previous forecasts.

Metal continues to flow into LME-approved warehouses despite tin’s nearby cash/three-month spread trading in a healthy contango of $42 per tonne. Stocks have edged lower on net to 7,055 tonnes after inflow of 50 tonnes and 75 tonnes of outflow; still, the outflow has pushed total LME tin stocks level down from the December 2019 high of 7,390 tonnes. Meanwhile, cancelled warrants have risen to 905 tonnes, providing some short-term support.

SHFE tin stocks have increased for the past six weeks to 6,954 tonnes as of January 17 via steady inflow since the November 22 low of 3,551 tonnes – an increase of 3,403 tonnes or an astonishing 96% over that period.

Global tin premiums remain subdued. European tin premiums remained flat in the week to Tuesday January 14 amid lackluster demand against a backdrop of strong availability. Chinese tin demand is weak while there are sufficient domestic stocks; China has been a net exporter of the metal. As well, traders are in no mood to do business while the Chinese New Year beckons (January 24-30). Meanwhile, US tin premiums were unchanged but overall sentiment after a quiet January is fairly positive.

Conclusion
LME tin is price has hit a higher high of $17,830 per tonne on Friday and is set for another positive weekly close. The upward momentum remains well supported by the improved macroeconomic backdrop; rising LME cancelled warrants are early sign that physical demand is set to increase in the coming weeks.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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