Andy Home: Investors are still betting on scarcity despite the rebalancing of ROI-Tin

What can tame a wild tin industry?

The London Metal Exchange's (LME) smallest base metal contract continues to defy the market gravity.

LME 3-month tin trades at $55,225 a metric ton. This is close to the previous all-time high of $59,040, reached during the febrile cross-metals rally that took place in January.

In March 2022 metal prices soared as a result of Russia's invasion of Ukraine.

London's tin prices have risen by 36% in the first six months of this year. Aluminium is the next best performer, with a 23% increase. It is also experiencing a supply shock due to the Iran War and the loss of Gulf production.

Tin supplies, on the other hand, are stable compared to previous years. LME stocks are increasing. LME's time-spreads indicate that there is no shortage.

How is it that the price of soldering and packaging material remains so high?

REBALANCING

Tin, unlike aluminum, nickel, and copper, has not been directly affected by the Gulf War.

According to the International Tin Association, global mine production will grow 8.7% in 2018.

After a long absence, the Man Maw Mine in Myanmar is slowly returning to life. The Bisie mine, in the Democratic Republic of Congo, is now stable following a brief closure last year due to M23 insurgents.

China's imports tin concentrats have exceeded 15,000 tonnes per month for first time since 2023.

Huanbo Quin, ITA's market analyst, said that the global production of refined products is still lagging behind. This year, Huanbo projected a growth rate of?2.7%.

The consumption is expected to drop by 0.7% due to a slower pace of solar installations in China, as well as the impact the Iran War has had on the consumer's appetite for electronic goods.

Fundamentally, the market is moving towards a balance between supply and demand. The progress is evident in the rising exchange inventories. LME inventories are up 60% from the beginning of the year, at 8,660 tons.

Global exchange stocks, including LME off-warrants and Shanghai Futures Exchange inventory (ShFE), are now close to 20,000 tonnes, up from 11,000 tons in October.

Comparing the LME time-spreads to the volatile outright prices, they are currently trading in a comfortable contango.

The Scawny Meme

Investors, especially those in Shanghai, who are looking for a price increase have not been deterred.

The metals fever of January has subsided, but not yet ceased. ShFE's tin market activity is still booming.

So far in this month, the daily volume of the Shanghai tin contract has averaged 345 000 contracts. This is the equivalent to the primary refined tin markets being traded daily.

The activity of tin options has exploded, with volumes more than doubling on an annual basis to 8,6 million contracts from January to April.

Funds have reduced their bullish bets but are still collectively long 2,414 contracts or just over 12,000 tonnes.

Early last year, the bullish news about tin was coming thick and fast.

Along with silver and cobalt, tin has been included in the "internet-metals" investment meme.

In the case of tin, its use as circuit-board solder is a major contributor to the hardwiring of the internet. The internet of things, robotics and artificial intelligence are powerful demand drivers.

All three are facing structural supply issues. Silver will have a deficit for the sixth year in a row. The copper industry is enslaved by a continuous raw material shortage as mines struggle to increase production in order to meet the smelter's demand.

The tin industry is still highly concentrated in frontier mining areas such as the Congo and semi-autonomous Wa State which operates the Man Maw Mine in Myanmar.

Even though there are no immediate signs of a shortage, all three metals have been priced to reflect future structural scarcity.

Tin's current price is proof you can't stop a 'good investment meme' even if the short-term dynamics of the market contradict it.

While this is true, it's difficult to see how tin can be reduced to the simple reality of supply-and-demand.

Andy Home is a columnist at. This column is great! Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)