The following piece was written at the invitation of ThomsonReuters as part of a series of articles by analysts on different metals markets. It is titled “Invest in the little one”. PK
An investment fund manager told me recently that he might be interested in dabbling in tin, but as the fund rules called for a minimum $100 million for an equity stake there were only one or two producers in the world that would qualify for consideration. Similarly the global mining giants – whose predecessor companies were all involved in tin up to the 1980s – no longer have it on their radar at all. The value of world tin production this year will be around $9.5 billion, which would barely show on a graph relative to the hundreds of billions invested in commodity derivatives today or the trillion dollars plus turnover of the electronics industry, the final market for half of tin sales.
For better or worse, it’s the fund managers that determine the price in the short run. That’s why the LME price is down 40% from its April peak, despite the fact that Indonesia will be halting exports tomorrow and the other major supplier, China, is currently a big net importer. A quarter of LME warrants are cancelled, the contango has disappeared and physical market premiums have increased. Some Indonesian producers complain that the LME price is wrong and want to set up their own market in Jakarta. However it was the same funds drove the price up to $33,000/tonne earlier in the year, greatly boosting producers’ profits at that time.
I don’t wish to be an apologist for big money, but do believe that most of the time the LME is an efficient means of sifting all the information available to come up with a reasonable valuation of any particular metal. For tin at the moment, the real physical market situation looks pretty firm. ITRI believes the market is in deficit this year (obscured in the first half by large Chinese exports), and will probably be so in 2012 and 2013. However there is an undoubted significant risk for tin and all the other metals that global financial and economic problems will burst the commodity price bubble that has existed for most of the last five years. Given the fear of that, a tin price a little over $20,000/tonne seems about right for now.
Looking a few years ahead though, there is a real case for long-term investment in tin supply, because mineral resources at existing operations are being depleted, grades are falling and production costs are rising. By 2015 world demand for tin is expected to be some 400,000 tpy and there won’t be enough mine supply to meet that even after allowing for a major increase in secondary production from the current level of some 60,000 tpy. That’s why ITRI has established a Tin Explorers and Developers Group for listed junior mining companies focussed on tin and will be running an “Investing in Tin” seminar in London on 5 December. Someone needs to invest in this little industry.
