The least-traded LME metal is having a bit of a moment. Tin, used mainly in solder for circuit-boards, is the best performer on the London Metal Exchange so far this year, with a 17 percent price rise to date that's outstripped the performance of more fashionable commodities such as copper and zinc.
That sort of gain could be taken as evidence that a collapse is looming, but there's reason to think tin's rally has legs.
On-warrant stocks, a measure of metal in LME warehouses that is available for purchase, fell to 3,235 metric tons on Feb. 25. That's the lowest level since November 2008, equivalent to about two months'-worth of metal leaving the warehouses at current rates. Such supply tightness typically gives some pep to prices.
There are other indicators that supply is tight. Tin forward contracts are in the greatest backwardation of any major LME metal, indicating that consumers are prepared to pay a significant premium to get their hands on it now rather than later. If you're prepared to wait 15 months, you can buy a ton of LME tin for a $563.50 discount to the cash price of $17,138.50. The fact that this discrepancy hasn't driven the two prices closer together, or pushed the later contracts into a premium over the near-term stuff, indicates the short-term demand is more than just speculative.
What's driving this? Unlike many other minerals that are widely distributed around the globe, tin has only a smattering of economic resources worldwide. The biggest deposits, in southern China, are almost entirely consumed by that country's domestic industry, and output from aging mines there is declining, according to Bloomberg Intelligence's Zhou Zhang.
The next-biggest source, in a band stretching from Sumatra up to central Myanmar, is overwhelmingly dominated by Indonesian producers, who've been hit by restrictions on the export of raw commodities and a tightening-up of environmental regulations amid a government crackdown on dangerous, polluting, unlicensed mines.
Rolling 12-month tin exports from the country have fallen to their lowest levels in government data going back to 2007, and floods last month on Bangka island, one of the country's two biggest deposits, are expected to cut output about 30 percent.
Whether the decline in Indonesian exports is due to more effective regulations, or a delayed response to low prices during 2015, remains to be seen. Myanmar's economic and political opening is also unlocking deposits that produced a record 24,000 metric tons of ore and concentrates last year, according to the World Bureau of Metal Statistics. Still, the closure last month of PT Refined Bangka Tin, Indonesia's second-biggest smelter, alone will remove an estimated 10,000 tons from global markets, helping to offset much of the Myanmar supply.
As with all commodities, tin's upward cycle will eventually correct. For the moment, though, it's shining.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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