The AI stocks meltdown is spilling over into the metals markets as investors rapidly reassess the prospects for data center demand.
Tin, which had been riding the AI wave on the back of its use as an electronic solder, has taken a particularly hard knock after Wall Street lost US$3.2 trillion ($4.55 trillion) in a single session on Thursday as investors feared Democrats could slow the buildout of AI data centers.
London Metal Exchange (LME) three-month tin has slumped from over US$50,000 per tonne to an eight-month low of US$45,360 in the space of a week.
The bursting of tin’s AI-investment bubble is ironically ill-timed since the market is the tightest it’s been in many months.
Source: Reuters
Falling inventory
Even as the outright tin price tumbles, LME time spreads are flaring into wide backwardation, with metal for immediate delivery trading at a premium to later-dated contracts.
The benchmark cash-to-three-months spread was in a deep contango, with prompt tin at a discount of more than US$350 per tonne to three-month delivery in August. Now, however, cash tin is commanding a US$125-per-tonne premium over three-month delivery, its highest premium since December.
The tightening of the forward curve in London is mirrored by the Shanghai Futures Exchange (ShFE) contract, which has also moved into steep backwardation.
In both cases, the shift in curve structure is down to low exchange inventory.
LME registered tin stocks have trended steadily lower since June and now total just 3,885 tonnes, their lowest level since December last year. Off-warrant inventory has also fallen to 1,089 tonnes, down 1,535 tonnes since the start of the year.
ShFE inventory has collapsed even more dramatically, from 12,358 tonnes in June to 4,004 tonnes.
Total exchange inventory, at just under 9,000 tonnes, stands at a four-year low.
Source: Reuters
Supply story
Low exchange stocks are largely a supply story.
Indonesia, the world’s largest exporter of refined tin, has seen an intensified government crackdown on illegal mining operations this year. That has fed through to lower exports, which fell by 14% year-on-year to 32,800 tonnes in the first nine months of the year.
The Chinese market has tightened due to a 45-day maintenance shutdown at Yunnan Tin’s (SZSE:000960) Gejiu smelter. The work began at the end of September, according to the International Tin Association (ITA).
The company is the world’s largest tin producer, and Gejiu produces 5,000–6,000 tonnes of refined metal each month. Its maintenance schedule can therefore significantly affect short-term dynamics in the Chinese market.
Chinese demand, meanwhile, has moderated this year due to the slowdown in solar installations after a period of red-hot growth. The solar sector accounts for around 10% of global tin usage, in the form of tin-coated ribbons connecting individual photovoltaic cells.
As for AI data center demand, it remains a powerful long-term driver but has yet to translate into a step-change in consumption, according to Tom Langston, senior market analyst at the ITA, speaking at last month’s LME Seminar.
The biggest impact of AI this year “has been on investor sentiment,” Langston added.
As the tin market is currently finding out.
(The opinions expressed here are those of Andy Home, a columnist for Reuters.) (Editing by Marguerita Choy)
