Tin Market Outlook: Long-term potential, short-term setbacks

ITRI Explorers and Developers Group Australian Tour, November 2014Peter Kettle, Manager – Markets, ITRI Ltd

Presentation outline

Long-term outlook in six slides

• History: Prices vs stocks• Swings in China trade balance• Usage opportunities and risks• Changing supply geography?• Project pipeline stressed• Price scenarios

What went wrong in 2014?

o Bulls disappointed (again)o China balance alteredo Indonesian export stop-goo Economic/financial picture weaker

Positives for producers

Good news from tin use survey Changes in Indonesia? Cost curve identifies price floor Deficits are real Prices lower now, higher later

LME prices vs visible stocks

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0 20 40 60 80 100

LME price in constant 2010 US$ vs visible stocks (’000t)

ITC buffer stock control1982 - 1985

Low cost over-supply1990 - 2004

Data 1980 - 2013

China refined tin trade balance

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000tonnes

Net Export

Net Import

10% export duty imposed in 2008. Exports since then

estimated from 3rd country import data

-15,000 -10,000 -5,000 0 5,000 10,000

Solders

Tinplate

Tin chemicals

Energy related

Lead & steel alloys Short-term (1-5 years)

Medium Term (6-10 years)

Potential net usage gains or losses by sector and timing, tpyTechnology risks over time

-50 -40 -30 -20 -10 0 10 20 30 40

Indonesia

Peru

China

Brazil

Bolivia

Malaysia

Other

Africa

Australia

Russia

2013-2018

2018-2023

Potential changes in tin-in-concentrate production, ’000 tpyMain changes in mine production

New projects in old production centres

36% of potential production from new tin sources in high investment suitability countries compared to 2% in 2013 (from Renison in Australia)

Price scenarios to 2023

0

10,000

20,000

30,000

40,000

50,000

60,000

2007 2009 2011 2013 2015 2017 2019 2021 2023

Central Forecast

Weak demand scenario

Supply constraintscenario

US$/tonne

Forecast range 2019 – 2023:

$20,000 - $50,000/t

Data: ITRI

What went wrong?

Forecast tin deficit unlikely to materialise in 2014 - industry group

Reuters News 19 August 2014

"Until recently we were forecasting a deficit in the order of 10,000 tonnes this year, but the latest indications are that second-quarter production in both Indonesia and China was considerably higher than expected," Kettle told the Reuters Global Base Metals Forum.

"In addition, the electronics industry has been very sluggish in the first half of the year. So the forecast deficit has pretty much disappeared."

BNP Paribas Base Metals Weekly

China raw material supplies

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Crude tin importsfor re-refiningSecondary refinedtin productionConcentrateimportsUnreported mineproductionReported mineproduction*

’000 tonnes

Data: ITRI, CRU,CNIA

* Including unreported mine production from 2013; the official mine production has stopped to publish from 2013

Indonesian export indicators

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000Ja

n-13

Feb-

13M

ar-1

3Ap

r-13

May

-13

Jun-

13Ju

l-13

Aug-

13Se

p-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Apr-1

4M

ay-1

4Ju

n-14

Jul-1

4Au

g-14

Sep-

14

ICDX sales

Surveyor data

Customs

tonnes

Economic and political uncertainties

Fund managers most bearish on growth, stocks for 2 years -survey – RTRS

LONDON, Oct 14 (Reuters) - Global fund managers are their most gloomy on the outlook for global growth and stock markets in two years as they adjust to a world of diminishing central bank stimulus, a survey showed on Tuesday.The Bank of America-Merrill Lynch poll for October showed a sharp increase in money managers' risk aversion, with their equity allocation slashed to a 34 percent overweight from 47 percent in September."Concerns over the imminent end of quantitative easing in the U.S. have left investors much less confident in the outlook for the global economy and corporate profitability," BAML said.

Tin use survey – initial results

-5.0% 0.0% 5.0% 10.0% 15.0%

Solder

Chemicals

Tinplate

Other

Total2014e2013

Average changes in refined tin use, based on small sample of companies outside China

Cost curve provides price floor

• 2013 tin mine production• Tin projects (anticipated to start before 2022)

Q1 = ~$9200

Q2 = ~$16200

Q3 = ~$18700

Market usually in deficit

World Supply/Demand Balances in Refined Tin('000 tonnes) Forecast

2009 2010 2011 2012 2013 2014 2015WorldWorld Refined Production 339.7 354.6 354.3 334.7 340.4 354.1 357.0DLA Sales 0.0 0.0 0.0 0.0 0.0 0.0 0.0World Refined Consumption 322.3 362.2 359.4 339.5 348.7 354.3 364.2Global Market Balance 17.4 -7.6 -5.1 -4.8 -8.3 -0.2 -7.2Reported stocksLME 26.8 16.4 12.1 12.8 9.7 7.0 6.0Producers 28.0 20.8 25.0 15.9 13.7 15.0 10.0Consumer/other 11.6 11.1 9.6 10.7 10.9 10.0 9.0Total 66.4 48.3 46.7 39.5 34.3 32.0 25.0World Stock Ratio(weeks consumption) 10.7 6.9 6.8 6.0 5.1 4.7 3.6

Summary

Long-term story is unchanged: “there is a high probability of supply shortages developing in the next five years, even if growth in usage is slow.”

Short-term setbacks: supply surges from Myanmar and Indonesia; weakness in key demand sectors; adverse macro-economics

Reasons to be cheerful: tin users positive; more order in Indonesia (?); low prices curtail supply; stocks trend downward.

Long-term story is unchanged: “there is a high probability of supply shortages developing in the next five years, even if growth in usage is slow.”

Short-term setbacks: supply surges from Myanmar and Indonesia; weakness in key demand sectors; adverse macro-economics

Reasons to be cheerful: tin users positive; more order in Indonesia (?); low prices curtail supply; stocks trend downward.