Why A Tin-Price Turnaround Could Be On the Horizon

Why A Tin-Price Turnaround Could Be On the HorizonHumankind has been using tin since before 3500 B.C. where early sculptors found the metal especially useful for making bronze statues because of its hardening effect on copper. Tin has also been found in utensils dating from that period.

In its early years, tin was mainly mined in Britain and Spain, but its extraction later spread to Asia, Africa and South America. By 2010, China was the world’s leading tin producer, according to the British Geological Survey. The country produced 279,100 tonnes of the metal during the year, well ahead of second-place Indonesia (87,090 tonnes) and third-place Peru (70,299 tonnes).

Tin has been traded on the London Metal Exchange since that market started operating in 1877.

How tin is produced

Tin is most commonly found in cassiterite ore. To remove the metal, the ore is placed in a furnace with carbon (in the form of coal) and heated to 1,400 degrees Celsius. Processors may also add sand or limestone to further remove impurities.

Refined tin is a silvery white metal that is very malleable, so it easily coats other metals. That, along with its resistance to oxygen and water, makes it a great rust inhibitor. In addition, tin is combined with lead—another highly malleable metal—to make solder, which is heavily used by industry, particularly in electronics.

Today, according to the London Metal Exchange, solder accounts for 52 percent of tin consumption, followed by tin plate (17 percent), chemicals (15 percent), brass and bronze (5 percent) and glass (2 percent). A combination of other uses accounts for the remaining 10 percent.

Tin prices have ranged widely in the last century

The price of tin has been highly volatile throughout its history. That’s largely because its heavy use in industry makes it highly sensitive to overall swings in the economy.

Tin prices spiked during both World Wars before setting off on a long-term rising trend around 1960, soaring above $15,000 a tonne in the early 1980s, according to tin industry organization ITRI. Prices then fell into a long slump. Spot tin was trading around $6,500 in 2006 when it took off on a two-year rise that pushed it up to $25,220 by May 2008. It then lost more than half its value, falling to $10,300 during the recession before rebounding to over $33,000 in April of last year.

Today, spot tin trades at $18,745, down sharply from its recent six-month high of $25,650, which it hit in February. That’s largely due to concern that the slowing Chinese economy, the European debt crisis and ongoing weakness in the US will weigh on tin demand in the coming months.

The short- and long-term outlook for tin

In the near term, falling tin prices could find some support from a drop in production from Indonesia. That could further tighten already falling tin supplies.

According to Bloomberg Businessweek, Indonesia’s exports fell 7.2 percent in June from May, to 7,300 tonnes. That’s because tin miners cut production in response to low prices, and bad weather disrupted mining operations.

“We believe this is a short-term blip,” Malaysian Chamber of Mines President Datuk Seri Mohd Ajib Anuar told the Borneo Post of the recent slide in tin prices. “Within the next few years, we will see a deficit in tin supply, and for 2012 alone we will have a deficit of 10,000 tonnes between demand and supply.”

BNP Paribas metals strategist Stephen Briggs agrees. “We expect overall inventory to fall further in the next 12 months,” he wrote in a May research report. “Not until 2014 will new tin mines begin to alleviate the situation.”

Briggs is calling for a tin price of at least $25,000 per tonne in the second half of 2012, and $27,000 or more in the first half of 2013.

How to invest in tin

Investors seeking exposure to tin can invest in tin futures, which are traded on the London Metal Exchange. You can also buy exchange traded funds (ETFs) or exchange traded notes (ETNs) that aim to track the price of tin. An example is the iPath DJ-UBS Tin Index (NYSE: JJT).

A third option is to buy shares of tin-mining companies. Most of the world’s leading producers are based in Asia. Yunnan Tin Company, the world’s largest tin producer, is traded on the Shenzhen Stock Exchange under the symbol 000960. The second-biggest, Indonesia-based Timah, trades on the Jakarta exchange under the TINS symbol.

 

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.