Woe betide any speculator who has shorted tin.
At one stage on the London Metal Exchange trading overnight, the cash spot price was up US$5,000 per tonne in just that session and briefly pushed above US$30,500, which is a move described in reports from London as “short squeezing”.
At session’s close, the cash price for the metal was US$29,625/t, up US$4,280 (or 16.8%), while the three-month price ended at US$24,385/t, which was a gain of US$735 (3.1% higher).
That is a backwardation of US$5,420/t, a dramatic sign that the supply-demand situation is under enormous strain as buyers tie up physical metal for immediate delivery.
It is the greatest gap between cash and three-month prices in 30 years.
Tin-related stocks on the ASX saw good gains as trading opened on Tuesday morning.
This development comes against a background of reports that China is stockpiling tin as part of its plan to become self-sufficient in semiconductors.
Tin stocks at London Metal Exchange warehouses on Monday stood 1,340t.
A note from Vivek Dhar at Commonwealth Bank this morning makes the point that spot prices are still 12% below their high recorded in April 2011.
“Supply is simply struggling to keep up with demand,” Mr Dhar added.
“The metal usually attracts less attention than its base metal peers because of its low liquidity.”
“However, investor interest is growing, particularly in China’s Shanghai Futures Exchange,” he said.
COVID-19 hit mine supply
In its latest note, the London-based International Tin Association (ITA) notes that tin miners have been hit by lower-than-normal production, logistics issues, strong demand and low exchange stocks.
It expects supplies to be tight for the entire first quarter.
The COVID-19 virus resulted in closed refineries and halted production.
ITA estimates that 327,200/t of tin was produced in 2020, a drop of nearly 8% on the previous year (with 2019 also having seen a 5% reduction compared with 2018).
“South America was significantly impacted by the coronavirus, with smelters in Brazil, Peru and Bolivia closed for an average of two months in the early part of the year,” the ITA reports.
The lengthy closure of Bolivia’s EM Vinto was particularly severe, and meant it dropped out of the top 10 global producers (that list being headed by China’s Yunnan Tin).
But ITA is more optimistic about the future.
“It is unlikely that we will see another year like 2020.”
“Enforced smelter closures are not common normally, but synchronous stoppages across the world are unheard of,” it said.
Capital Economics: tin price rally will ‘fizzle out’
A more pessimistic view comes from London-based Capital Economics in a report titled “Tin’s rally to fizzle out by end-2021”.
Commodities economist James O’Rourke takes the view that the tin market’s large deficit will fall significantly this year owing to a rebound in supply and softer demand growth from China.
“As a result, we expect the price of tin to end the year at around US$17,000/t,” he wrote.
This note was distributed before Monday’s ballistic price gain, but the underlying reasons given by Mr O’Rourke are not affected by that market action.
He says tin’s price will fall for two reasons.
One, he expects spending to shift away from tin-intensive electronics and consumer goods and move back to services as economies lift lockdowns and businesses re-open.
Two, supply should bounce back.
Capital believes both mine and refined supply will pick up this year, particularly in Indonesia, the world’s second largest refined tin producer (after China).
“Elsewhere, we doubt that COVID-19 related shutdowns to production will be repeated this year, which will boost mine supply in South America,” writes Mr O’Rourke.
He has one caveat: tin exports from Myanmar could be disrupted by the recent coup, with that country being an important supply for China’s refineries.