Tin collapsed 11 percent last week. It’s now poised to end this week with its biggest gain since 2013.
The whiplash isn’t all about mine closures, export bans or smelter shutdowns. The least-traded base metal is stuck in a cycle of volatility as thin volumes and wild prices deter liquidity that typically smooths trading action, according to Vantage Capital Markets.
The 10-day volatility for the benchmark contract on the London Metal Exchange this week hit the highest since October 2011. The measure was more than three times that of copper and five times the level for aluminum, the most-traded LME metals. Tin nosedived 13 percent in the six days to April 20 before rebounding 6.7 percent the next day, the most in three years.
“Tin will continue to be volatile because it’s a vicious circle,” said Lesley Campbell, head of commodity business development for Asia at Vantage Capital. “The more volatile, the thinner the volume. And, hence, the more volatile.”
The metal used for soldering electronics is the worst performer on the LME this year, plunging 21 percent amid rising supply from Myanmar and China. The government and producers in Indonesia, the world’s largest exporter, are trying to cut production and trim shipments in an effort to halt the slide.
A global deficit will narrow to 5,000 metric tons this year from around 6,500 tons last year, according to estimates from ITRI Ltd., a St. Albans, England-based, producer-funded industry group. Prices rose 0.7 percent to $15,590 a ton on the LME at 2:53 p.m. in Hong Kong.
The contract for delivery in three months on the LME has traded 807 times a day on average in the last six months, compared with 10,981 for lead, the second-least traded, and 53,566 for copper, the most-active, according to bourse data. On April 17, tin volumes surged to 4,184 lots, the most since June 2013, as prices swung between a 9 percent loss, the biggest intraday drop in more than four years, and a 2 percent gain.
“It goes from chronically overbought to chronically oversold and back again,” said Campbell, who has more than 30 years of experience in metals. “The fact that the market is illiquid may encourage people to come in and establish positions, because they believe they can push the market around.”
Most producers typically don’t hedge their price exposure, leaving speculators as the main cause for tin’s price lurches, according to Peter Cook, chief executive officer of Metals X Ltd., Australia’s largest miner of the metal.
“We are seeing wild swings without the traditional and fundamental aspects of market trade,” said Cook. “It is exacerbated in tin because the market is so small and it is affordable for larger fund speculators to do so in this market.”