Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Tin, an Overlooked Commodity

Commodities / Metals & Mining Aug 19, 2010 - 02:24 AM GMT

By: Alex_Cowie

Commodities

Best Financial Markets Analysis ArticleI want to introduce you to one of the most overlooked metals in the commodity complex. On a price basis, it’s been a star performer. Yet it hasn’t attracted much attention.

That’s just the way I like it, though. It gives you a chance to examine the dynamics of the market without rushing. In this case, the dynamics are very strong. The supply side is constrained; a situation that almost always puts upward pressure on prices. The demand side is strong too, as the recent price action shows.


If you’re able to find a low-cost producer of a metal with these kinds of dynamics—and you’re able to buy that company before it’s been fully ‘de-risked’—then you have a chance to make very large gains as the company moves closer to production.

Stockpiles falling, demand rising

The metal I’m talking about is tin. Worldwide demand is running well ahead of struggling production and the entire tin market is heading straight into a prolonged shortage where the highest bidder wins.

The result is that there is already a global tin shortage. This is getting worse by the minute and there is no relief in sight. There is no substitute for tin, and no one is developing any new mines big enough to bridge the growing shortfall.

The best illustration of this is the astonishing speed at which the spare tin inventory has disappeared in the last six months. This slack in the system is represented by the blue section of the chart below. This shows the size of the tin stockpiles held by the London Metals Exchange. 

Since the start of the year, it has nearly halved. At this rate, it could all be gone by next Easter. And what then?

Tin stockpiles (in blue) falling fast

Source: Petra Capital

None of the other commodities are burning through their inventories at anything like the speed that tin is. The closest competitor is copper, which is being soaked up at not even half the speed. This shortage in supply, dwindling inventory and rising demand has led to a tin ‘deficit’ about 5% the size of the global market.

This deficit of tin in the market means one thing: Strong tin prices.

The tin price is currently at $21,700, and jumping every day.

In the first half of this year tin was the only base metal to rise in price at all, gaining 12.2% in six months. This was despite 30% of tin inventory being mopped up by buyers over this period. In the last three months of choppy markets it has out-performed all other commodities hands down with a gain of 27%.

With a 38% gain over the last twelve months, tin has been the best performer out of nearly every single hard or soft commodity you could think of. It was bettered only by palladium (78.7%), and Richard Bay Coal (39.3%) both of which I am happy to say Diggers and Drillers readers have exposure to already through recent recommendations. The only other commodity out-gunning tin is wheat, only because the recent Russian wheat export has made prices jump in recent weeks.

Tin’s market dynamics and good performance in ‘fair-weather and foul’ tells us one thing: we can be far more confident about the tin price being strong in the future, than we can be for other commodities. 

So why haven’t we all heard about this sooner?

Mostly because the tin market is very small.

The entire global tin production amounts to just 0.29 million tonnes, worth just $6 billion, annually.

Compare this to global copper production which is closer to 16 million tonnes, worth $120 billion, annually.

It is often in overlooked commodities where the real opportunities lie.

You could call tin ‘the micro-cap of base metals’. And like all good micro-caps, it is capable of some impressive price jumps once the market is behind it, as it is now.

World needs more and more tin each year

The demand for tin is quite steady, and is growing at about 5% a year. So what is it used for?

Just over half of the world’s tin goes into solder and is used for joining wires to circuit boards. Your mobile contains about 8 grams of tin for example. Televisions, computers, microwave ovens; if it’s got a circuit-board in it, it contains tin. It has a low melting point which makes it ideal for this purpose. We are unknowingly surrounded by the stuff but know nothing about it.

A few years ago Chinese and European producers of electronic goods legally had to stop using solder with 40% lead and 60% tin, for health reasons, and start using solder with 97.5% tin. This single policy change increased global tin demand by over 20%.

There is speculation that the US could follow the same path, as California enacted law earlier this year preventing the sale of items that don’t pass the same European ‘Restriction of Hazardous Substances’ standards. If all US states went for 98% tin solder as well, this move would create a great deal more tin demand.

The rest of the tin is used for ‘tin-plating’ which is coating steel cans to make tin cans, for production of bronze, and various chemical processes. It is also used in lithium ion batteries. Projections for electric car use in China are massive, and this could crank up tin demand even further.

...but the supply of tin is crashing and no new big mines are being built

The world saw ‘peak-tin’ in 2005 and since then production has fallen by 13% from 325,000 tonnes a year to less than 283,000 tonnes a year.

A near halving of production out of Indonesia has been a big part of this, as the chart below shows. Indonesia is covered by the blue/green/black bars. The higher grade Indonesian ore has now mostly been extracted, and the government has cracked down on small, environmentally damaging operations. Production from Brazil is starting to drop because of industry reorganisation, and Peru is struggling to keep up previous production rates. Meanwhile, supply from DR Congo is falling because of ethical issues [can you be more specific about this...just a bit vague].

Peak tin production was back in 2005 – It’s now less than 300,000 tonnes a year

Source: BNP Paribas

The world’s biggest tin producer is China (the red bar) with about a third of total production. However, China is also the world’s biggest user, and overall it is a net importer of tin.

This is an important point: it means China uses more than it produces so is buying from the other countries like the rest of us. This leaves the whole world fighting over the dwindling production from Indonesia, South America and DR Congo.

The net effect of this dwindling supply and rising demand is that tin prices should keep rising for the foreseeable future. It seems we are moving into a ‘structural deficit’ where there is no visible solution on the horizon.

BNP Paribas expect tin to be more than $23,000 / tonne as soon as next year. This seems quite feasible to me.  

There is clearly a growing need for a sizeable tin producer to capitalise on this growing deficit in the market. 

Alex Cowie is the head analyst of the resource investment advisory service Diggers and Drillers - Alex holds a graduate degree in finance and investment from the Financial Services Institute of Australia. Trained in Industrial Equity Analysis and Applied Portfolio Management, he is the editor and chief analyst for Diggers and Drillers and contributes regularly to the free e-letters The Daily Reckoning and Money Morning Australia.

Copyright © 2010 Alex Cowie - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in