* Euribor futures suggest rate of 0.64 pct in June, September* Euribor rate falls to lowest since July 2010* Euribor/OIS spreads seen stabilising around 20-30 bpsBy Ana Nicolaci da CostaLONDON, March 22 Bank-to-bank Euribor lending rates fell on Thursday as excess liquidity continued to pressure short-term rates but could eventually stabilise near record lows as the European Central Bank is seen holding interest rates for a while. Three-month Euribor rates fell to 0.817 percent - the lowest since July 2010 - from 0.824 percent on Wednesday. One trillion euros worth of cheap 3-year ECB funding has pulled them back from 1.42 percent where they were before the central bank's first injection in December. Euribor futures show that the 3-month rate should fall to around 0.64 percent in June or September - near record lows of 0.63 percent seen in March of 2010."It seems that June or September Euribor are pricing a level of Euribor which is as low as it can get if the European Central Bank doesn't cut the deposit rate," Corentin Rordorf of Morgan Stanley said.
Since the rate offered at the ECB's deposit facility is currently at 0.25 percent, overnight Eonia rates at 0.35 percent are not expected to ease much further. Given that a three-month borrowing rate has to offer some premium over overnight lending costs, Euribor rates of 0.64 percent, offering roughly a 30 bps premium over the current Eonia rate, cannot fall much further either, Rordorf said. ECB BUFFER
Simon Smith, chief economist at FxPro also saw the 3-month Euribor/OIS spread - a measure of counterparty risk - stabilising around 25-30 basis points, as the ECB is expected to keep borrowing costs on hold for at least the next year. A Reuters poll published last week shows economists expect the ECB to keep interest rates at a record low of 1.0 percent through all of this year and next, after the ECB warned about inflation risks at its last monetary policy meeting."The ECB has been relatively clear, not explicitly saying but giving the impression that it doesn't really have any inclination to move rates lower," Smith added."There's probably a bit further to run in terms of those short-end contracts but not that much further."
The ECB earlier this month raised its forecasts for inflation this year.. Another flare-up in the euro zone debt crisis could cause measures of counterparty risk to widen. Market players are increasingly worried about the fiscal situation in Spain, while they do not rule out further bailouts for Greece and Portugal. Ten-year Spanish/German government bond yield spreads have widened some 40 basis points since the beginning of the week. A widening in the spreads of peripheral debt over their German counterparts could prompt a rise in measures of counterparty risk. But Alessandro Giansanti, senior rate strategist at ING said any impact would be offset by improved funding conditions for banks after the two ECB cash injections, limiting any fall-out. Indeed, excess liquidity in the financial system could take the Euribor/OIS spread as far as 20 basis points, he said."When you know that every bank can access unlimited funding from the ECB, from the national central bank, do you really need (such a big) risk premium in this environment?" he said.
* Many banks shun market after cartel collapse* Firms look at options such as end-user finance* Deficit due to deepen, threatens spike in price* Soaring prices could spur substitutionBy Eric OnstadLONDON, Dec 11 Companies seeking to build new tin mines are struggling to finance the projects, which could deepen shortages in a market that is already in deficit and exacerbate price moves that are already volatile. Financing any new mine has become difficult following the global financial crisis, but the situation in the tin sector is even worse. Many banks shun lending to tin projects due to its thin market after the collapse of a cartel in the 1980s. Prices may have to double to attract enough investment in new mines. But if the price soars out of control, consumers could be forced to find substitutes, leading to a boom-bust situation. Companies are looking at a range of creative options to fund the next generation of mines to extract the metal, which is mainly used for solder in the electronics industry and in coatings for cans and other packaging. Some are seeking money based on other products mined in the same project such as tungsten or iron ore, while others are trying to obtain financing from end-users who want to lock in a stream of supply."It's very tough for tin producers," said Peter Cook, chairman of Australia's biggest tin producer, Metals X."The real problem is tin is a commodity that has a very volatile price ... Any bank that finances a project likes to secure the cash flow," he said in an interview during a recent tin conference sponsored by industry group ITRI. Banks often require mining firms to hedge output to lock in future prices, but long-term hedging is impossible for tin, because futures for the metal on the London Metal Exchange (LME) only extend 15 months forward, compared with 123 months for copper and aluminium.
Another difficulty is weak share markets and low valuations of mining shares, which makes it difficult to raise money through equity issues."Some projects can actually get project finance from the banks, but the project won't go because they can't raise the equity component," Kasbah Resources Managing Director Wayne Bramwell said. END USERS Australia's Venture Minerals, which is developing the Mt. Lindsay tin/tungsten mine in Tasmania, expects tungsten to be the main driver for financing and may sell U.S. bonds."There are more creative ways of getting funding through off-take around tungsten, but tin I have less confidence in," Andrew Radonjic, its technical director, said.
Kerry Heywood, chief executive of Tin International, a private company working on projects in eastern Germany, has been holding talks with European tin smelters that use scrap supplies but are interested in more stable feedstock from mines. Kasbah Resources also has been holding talks with end-users. Most consumers have not been prepared to be the main sources of cash, but they probably hold the key to future funding, Bramwell said."We can see this security-of-supply issue already happening. The change will be driven by the end-users, reaching through the smelters and down into companies like our own to secure supply."Korea's Daewoo International has already made an investment in a tin project in Cameroon, Bramwell added. DEEPER DEFICITS The tin market is the only one of the six main industrial metals on the LME with a deficit forecast for 2013.
According to a poll of analysts by Reuters, its deficit is estimated to be 2,970 tonnes this year and widen to 4,189 tonnes in 2013. The shortfall could get deeper, because small-scale mining in locales such as China, Indonesia and Bolivia, which accounts for nearly 40 percent of global mine output, is expected to decline in coming years as easily accessible deposits run out. At the same time, few new bigger mines are due to launch production."There are many deposits but few real projects with economics that seem viable," John Sykes, director of Greenfields Research, said. Many new mines have low grades of ore, which hikes costs. At a grade of 0.5 percent, a typical open pit mine would need a price of $25,000 a tonne to just break even, and an underground operation would need about $40,000, ITRI said. Three-month tin on the LME has gained 18 percent since late October to around $23,000 a tonne but is still down about a third from a peak of $33,600 touched in April 2011. Peter Kettle of ITRI expects prices to reach $35,000 to $40,000 by 2015, a gain of 50 to 75 percent. A more bullish view comes from Mark Thompson, executive chairman of private firm Treliver Minerals, which is seeking to revive tin mining in Britain. He said prices would go as high as $100,000 per tonne due to the funding difficulties and resulting shortages, before settling at $40,000 to $60,000."Very few projects I look at, and I'm also on the board of Eurotin so I'm talking about our projects as well - none of these things work at $20,000, none of them are financeable," said Thompson, who co-founded Galena, the hedge fund arm of commodity trader Trafigura. Warren Hallam, managing director of Metals X, warned that the tin market could behave like the rare earths market, where prices skyrocketed on supply fears when China imposed export controls and then later tumbled."It'll always be subject to manipulation because it (tin) is the tiniest of all those markets. It's a miniscule market compared to the copper market," Hallam said. A spike in prices, however, could curb demand in the long run by spurring consumers to find alternatives, Kettle said."This is all still dependent on a continual growth in consumption of a couple percent a year. If the price does goes to $100,000 a tonne, then you will get a lot of substitution.