The market continues its consolidation mode for three days as locals are taking some of their recent profits in the absence of further catalysts. Volumes have started to taper off a bit after last week's record breaking run but foreign institutional buying support still quite noticeable on every dip. Looking at 1H reporting, domestic consumption names continue to show resilience despite rising inflation risk. August inflation data at noon today. Consensus is looking at 1%MoM and 6.69%YoY Vs last month 1.57% and 6.22%. That will likely be followed on Friday Sep 3 with the Central Bank keeping their rates unchanged.
Be assured that ultra cheap central bank credit will stay much longer. It is not surprising that we are beginning to see signs that US credit cycle is turning as noted by Russell Napier in his latest report. This is inflationary. Risk reward of commodity producer is looking increasingly attractive. (Note: Indonesian commodity plays reported lackluster 1H due usually heavy rainfall affecting production)
One commodity that really stand up but hardly anyone looks at is TIN. Even with the slowdown in China, tin price are still up 25% this year and 12% last month alone making it the best performing base metal. Prices are not being forced up by overwhelming demand, but by constrained supply from expanding threat.
Tin prices since 2009
A global movement to reduce the use of lead for soldering is boosting demand for tin in such applications. Inventory at LME warehouses has fallen 46% this year and prices are rising towards the all-time high, demand remains well below levels seen prior to the global financial crisis.
The principal reason for the rapid rise in tin prices is that production is constrained. Tin production has been falling since 2007, including a 1.8% fall in mine output last year that left supply 3.4% shy of demand, according to the World Bureau of Metal Statistics.
China produces 37% of the global total and Indonesia accounts for 33%. The high concentration of production centered in these two markets make global tin prices vulnerable to supply shocks, and Indonesia’s tin exports fell 14.5% in the first six months this year due to heavy rainfall.
Dominant Indonesia tin producer Timah TINS IJ trades on 9x 2011 earnings with lots of operating leverage. I would be a buyer.
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