1) Low liquidity
The LME tin contract is simply too illiquid to be on the radar of most funds. Unlike the major base metals such as copper whose price is heavily driven in the short term by funds eyeing macro-related factors like currencies and trade flows, the tin market is just too small in terms of volume. That means its price can be volatile and driven by obscure tin related factors that maybe hidden from all but the most seasoned tin market observers.
2) Concentrated, volatile supply
Three countries account for 66% of global mined tin supply; China with one-third share of total supply, followed by Indonesia and Myanmar both with a 17% market share.
Indonesia has traditionally been the wildcard, and thats a problem given that it is also the largest global exporter of tin. Earthquakes, monsoons and regulatory battles with major producers have frequently curtailed production from the exporter. That being said, any hit to exports in the past have tended to be brief.
Myanmar emerged as a major new source of tin around 2013, when significant tonnages of mine concentrate first started being imported by China. The sustainability of the tin mines in Myanmar’s Wa region has been the question of much debate in the tin market, with suggestions that reserves are being depleted rapidly.
3) Soldering demand the primary driver
The main application for refined tin is for soldering (accounting for 47% of demand in 2017). Electronics component miniaturisation and economisation remain the greatest threat to tin use in solders – an ever-decreasing amount of metal is being used to achieve the same performance. This is offset by market expansion and the opening of new markets such as robots, e-bikes and electric vehicles.
Chemicals and tinplate account for 18% and 14% respectively, followed by lead batteries with an 8% market share leaving 13% for other uses.
4) New technologies
According to the International Tin Association there were more than 5,000 scientific papers and patents on tin related technologies published in 2017 demonstrating a strong future for this versatile element. Energy uses and technologies are the strongest new use drivers, with tin additions to lead-acid batteries and solder used for joining solar cells already benefiting. Over the next decade tin has many opportunities in lithium-ion and other batteries, solar PV, thermoelectric materials, hydrogen-related applications and carbon capture.
The challenge for investors (as with nickel) is understanding the impact that new technology demands could have on the metal versus the established end markets.
5) Stock levels
In theory rising tin stock levels should be indicative of a weak market, as supply exceeds demand. It is normal for prices and inventory levels to generally move in opposite directions. When tin producers don’t like the market price and think that they can get a better one by waiting, they put their production into warehouse storage and wait for better times. When prices rise up to or above a price level that the producers like, tin starts coming back out of inventory and onto the market. So watching tin inventory levels can give us insights about where the producers think a fair price is.
Both the LME and the Shanghai Futures Exchange (ShFE) report tin stocks. Traders should monitor the change in tin inventories at both exchanges for clues about tin supply and prices.
6) US dollar
Like most internationally traded commodities tin is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.
A weaker dollar can also act as a disincentive to producers to increase output. The prospect of a lower profit margin acts as an incentive to decrease the supply of the metal.
7) Conflict minerals
Under the Dodd Frank Act of 2010 companies are required to investigate their supply chains for tin, tantalum, tungsten or gold mined and then sold to finance insurgent militia groups in the DRC and surrounding central Africa region. Tin may pose the biggest challenge for companies looking to rid their supply chains of “conflict minerals” blamed for funding violence in the Democratic Republic of the Congo.
8) Chinese demand
As families furnish their homes with large appliances the demand for tin typically increases. Since China is the largest global end user of tin (accounting for around half of refined tin use) the price of tin typically reacts in advance to signs of faster or slower growth in Chinese demand.
9) Input prices
Tin occurs in cassiterite ore bodies, and breaking down these ore bodies to extract the metal expends energy. Producing tin requires ample supplies of coal, electricity and crude oil. Mines and blast furnaces utilize energy to extract tin ores from the ground and process it into tin. These costs can have a big effect on primary production. Similarly, the costs of scrap tin can impact the price of secondary production.
10) Political interference
In the past the Indonesian government has attempted to tighten its grip on the country’s independent tin sector. Meanwhile, China has cracked down on illegal mining operations in a bid to improve environmental standards.
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