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Tin Resurgent as Speculation Adds Pressure to Supply Squeeze

Published
Apr 18 2024
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On Wednesday, the London Metal Exchange (LME) Tin cash price closed above $33,000 per tonne, marking a significant 30% increase since the beginning of the year. This compares to a 13% rise in the more commonly traded LME copper futures over the same period. Tin is experiencing a surge due to a combination of dwindling supplies, renewed demand, and speculative market movements.

Supply Squeeze

Tin has long been facing a supply crunch that has recently intensified. Historically, Myanmar ranked as the third-largest global tin producer, contributing around 10% to the worldwide output in 2021 and 2022. However, the country saw a dramatic reduction in its mining activities in April 2023 when mining activity was suspended. The problem has been exacerbated by the fact that the majority of tin mines in the country are located in the semi-autonomous Wa State, which has been ravaged by conflict in recent years, and as such has seen tin exports from Myanmar have fallen dramatically.

Simultaneously, Indonesia, the world's second-largest tin producer after China, faced its own challenges. The country saw negligible exports in the early months of 2024 due to governmental delays in approving export licenses. The International Tin Association reported on 14th March that the country had only exported 55 tonnes of tin in February 2024, which represented a “98% decrease from February 2023.” In January 2024, less than 0.5 tonnes of tin were exported from the country. However, in the same announcement, the ITA stated that “two of Indonesia’s three largest smelters, including PT Timah, have now restarted exporting tin.”

More recently, another supply region has come under threat. North Kivu, in the Democratic Republic of Congo, is home to the Bisie tin mine. Owned and operated by Alphamin Resources, “Bisie produced 12,600 tons of tin concentrate last year, accounting for around 4.5% of global supply” according to Reuters. The North Kivu region is now under the violent control of the M23 militia group, who consequently also control road access to and from the provincial capital, Goma. The city is a key customs border for tin exports to pass through en route to ports on the east coast of the continent, such as Dar es Salaam or Mombasa, and conflict is therefore causing uncertainty about the accessibility of the region’s tin. The ITA has advised that “delays may be expected as mineral shipments are rerouted further north and south away from rebel-controlled areas.”

The cumulative impact of these regional issues is evident in the LME tin stock levels, as shown in the graph below, which have witnessed a sharp decline of over 45% since the beginning of the year, dropping from 7,730 metric tonnes to just 4,135. This reduction in available stock is indicative of a severe supply squeeze that, in isolation, would likely lead to bullish market sentiments. However, there are other factors further supporting the bullish narrative.

LME tin stocks april 2024

Demand on the Rise

Parallel to the supply issues, there has been a noticeable resurgence in demand for tin, particularly from the electronics sector where tin is extensively used in soldering. The semiconductor market, a substantial consumer of tin, has shown robust growth in recent months. According to the Semiconductor Industry Association, global sales in February 2024 saw a significant year-over-year increase of 16.3%, although there was a slight month-on-month decrease from January's figures.

The demand for tin is also buoyed by the broader technological and environmental trends. For instance, the transition towards renewable energy sources has bolstered the demand for tin, which plays a critical role in manufacturing solar panels and constructing electrical infrastructure necessary for supporting renewable energy deployments.

This rising demand had previously led to a record bull run for tin prices in 2021 and 2022, reaching an all-time high in March 2022. The surge was initially driven by heightened demand for consumer electronics and logistical backlogs stemming from lockdowns during the COVID-19 pandemic. However, the post-pandemic economic environment, characterized by inflation and higher interest rates, temporarily dampened consumer spending on electronics, impacting semiconductor demand accordingly.

Despite these fluctuations, the current revival in semiconductor demand signifies a robust recovery and suggests a sustained upward pressure on tin prices, at least in the medium term. This recovery is further supported by the ongoing challenges in tin supply chains across several major producing regions.

Lme tin positions april 2024

Bullish Bets

A final factor in the current tin rally is the influence of speculative traders. Tin traditionally has lower trading volumes than copper, for example, and this lack of liquidity means it is more susceptible to price squeezes. Since the first reporting week of the year, the number of long positions held by Investment Funds has increased by over 300%, rising from 849 positions to 3713 as of April 12th. The share of open interest held by this group has risen from 4.49% to 14.76% over the same time period. This rise in bullish positions and total positions held on LME tin futures can be seen in the graph above from ChAI.

Moreover, Bloomberg recently reported that one trader is responsible for ”at least 40% of long positions on tin for May delivery.” As the price climbs higher, every holder of a short position will be forced to buy back their positions, further squeezing the price.  The situation draws comparisons to the nickel price squeeze of March 2022, when Tsingshan Holding Group held a massive short position on LME nickel futures and ultimately caused the temporary breakdown of trading through the exchange. As a direct result of that fiasco, the LME now has limits in place for daily trading volatility to prevent another market meltdown. Whether those limits will have to be enforced remains to be seen, but right now tin seems poised for an extended upward trend.

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