Speculators push illiquid tin to records, ignoring fundamentals
Funds and speculators are having an outsize impact in the thin-volume tin trade, driving it to a series of record peaks in defiance of warnings from analysts and regulators that the market is growing overheated.
The price of tin – mainly used for solder in electronics – has surged by 55% over the past three months on the London Metal Exchange, hitting a record $58 340 a metric ton on Tuesday.
The Shanghai Futures Exchange tin contract has also surged, largely fuelled by speculators, and struck an all-time high of 462 720 yuan ($66 615) on Monday.
While there have been concerns about tin mine supply from Myanmar and Democratic Republic of Congo in recent months, the situation has improved, reflected by a steady rise in global inventories.
"The recent strength in prices has occurred despite rising visible exchange stocks, soft physical market indicators, and no material change in underlying supply–demand dynamics," said Tom Langston, senior market analyst at the International Tin Association.
Tin inventories in LME warehouses have more than doubled since early December to 7 060 tons, having hit the highest levels in two years this month.
Stocks in Shanghai Futures Exchange warehouses have also climbed, jumping 40% since early January to 9 720 tons.
Tin trading volumes have also risen, but they are tiny compared to the other five main LME base metals, producing volatile trading with wide swings.
"It's certainly very hard to trade," Robert Montefusco at broker Sucden Financial said on a webinar on Wednesday, adding that investors would need "deep pockets" because of the $2 000 to $3 000 price swings occurring in a single day.
Despite position restrictions imposed by Shanghai Futures Exchange on Monday, which caused a temporary pullback, prices rose ahead again on Wednesday and Thursday.
"There are things in motion to try and stop the speculation, but in tin, because it's not a big liquid market, this can continue to go on," Montefusco said.
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