The tin market on the London Metal Exchange is "disorderly" and prices are distorted as latest data shows one entity controls more than 90 percent of stocks and cash contracts, industry sources told Reuters on Wednesday. "This is not a good situation and it certainly is not an orderly market," said a tin buyer for a European tinplate company. "To have such a concentration of warrants by one single holder leads to prices higher than the fundamentals."
The dominant holding has pushed the premium for cash material over the three-month contract to $730 a tonne last week. However, one source said the original long dominant position holder might have scaled back the size of his holding, but that others may have taken up that slack. "The tin market is a complete nonsense at the moment, prices do not reflect what is going on in the real world," one senior tin market source said. "There is no shortage of tin … the exchange needs to impose position limits." LME stocks have now risen to over 25,000 tonnes, three times the level at the start of this year.
"Trade customers are extremely unhappy. But there’s nothing illegal going on so they can’t actually do anything about it," a senior trader on the LME floor said. "It’s all within the rules but there are loopholes being created." The persistence of this backwardation despite ample supplies of physical tin could be one reason why, according to one source, the LME’s Special Committee may be looking into the dominant holding. The Special Committee meets quarterly and includes the LME’s head of regulation and compliance Diarmuid O’Hegarty. The LME would not say whether the committee has met recently, is meeting or is due to meet some time soon. If the Special Committee suspects improper trading, which is affecting or is likely to affect the market, it can after consultation with the clearing house take action to rectify the situation and direct members to close or reduce positions. The London Metal Exchange would not comment on any aspect of the Reuters story.
