Like so many other commodities, tin’s supply/demand fundamentals are out of balance these days. Inventories of the metal have fallen nearly 50% this year to its lowest level since June 2009 on the London Metal Exchange (LME). At about 15,000 tons, that equates to 16 days of global use. It’s no wonder then that tin prices have doubled since early 2009. They even recently cruised past the key $20,000 per ton barriers – the highest level since August 2008 – to $21,000. Admittedly, the tin market – the smallest at the LME – can swing wildly as hedge funds and other speculators take positions. But this time may very well be different.
And this is why…
The Rise in Tin Future Prices
The rise in tin future prices this time appears to reflect a real tightness of the physical market. Buyers are paying more to secure supplies than they have for two years.
Korea’s closely watched public procurement service acts as a middleman for the country’s medium-sized tin consumers in the electronics sector. It recently paid a premium of $930 a ton for a cargo of high-grade tin, up from $530 in May.
- The tin industry-backed Itri said that global solder shipments in the first quarter of 2010 were 50% higher than the same time in 2009. This was due to stronger output from the electronics industry in Asia and Europe.
- The UK consultancy, the World Bureau of Metal Statistics, estimates that total tin demand jumped 20% January to April compared with the same period of 2009.
- Japan’s refined tin imports rose 80% January to April 2010 versus 2009.
As Tin Demand Increases… Supplies Plummet
Despite that increase in demand, tin supplies in Indonesia have plummeted.
The commodity’s largest producer, its exports of redefined tin account for a third of the global market. But in the first half of 2010, those dropped 14.5% from 2009 levels to only 43,263 tons.
In part, that stems from a depletion of Indonesia’s easily mined and high-grade reserves. And it also comes from a government crackdown on illegal mining in Bangka-Belitug, off Sumatra Island.
Small and medium-sized smelters there depend on supplies from crude, family-owned mines in the island. And since the crackdown, those smelters have had to reduce output or shut down altogether due to a lack of supplies and credit.
PT Donna Kembara Jaya just shut down last month, removing about 5% of the nation’s output from the market.
And Indonesia’s fluctuating mining laws are hurting the sector further. Unsure of future government policies, investors have taken their money elsewhere.
In addition, tin production has also fallen in Peru, the third-largest exporter, and Bolivia, the seventh. The lingering financial crisis has cut credit availability to miners there.
Investing in Tin
Investors should bear in mind that most large tin companies’ projects around the globe haven’t even reached the feasibility study stage yet. And junior miners almost everywhere haven’t escaped the financial crisis yet.
All of this points to little, if any, increase in tin ore output to meet the rising global demand for a while. Most industry insiders expect supply tightness through 2011 at least.
That makes now a good time to look into Barclay’s iPath Dow Jones-UBS Tin Subindex Total Return ETN (NYSE: JJT). It reflects the potential returns on tin futures contacts.
Adding a little tin to your portfolio, through JJT, should be a profitable move.