"Metal in Focus: Tin Is a Shining Star" (Source: Resource Investor)

By Ronald D'Britto
11 Feb 2008 at 08:30 AM GMT-05:00

MUMBAI (CommodityOnline.com) -- Tin has risen to the highest since at least 1989 on the London Metal Exchange. Tin prices have climbed on speculative buying since mid-July, seemingly following the path of LME lead and nickel.

However, with LME stocks rising steadily, demand down in year-on-year terms and easing Indonesian supply, there is indication that the gains wouldn't be fundamentally justified.

The Key Fundamentals Propelling Tin

1. Supply Crunch - Indonesian and Bolivian

Indonesia is the world's second-largest tin producer after China. PT Timah and PT Koba are the Indonesia's first and second-largest tin producers respectively.

Indonesia clamped down on dozens of small smelters last October for tax evasion and violation of environmental regulations, among other issues. Indonesia's crackdown on illegal mining and smelting on the island earlier in the year resulted in the closure of several small smelters and reduction in output by bigger companies such as Koba Tin.

Bolivia's state-controlled Huanuni Mining Co. was hit by strike action, and further tension is expected in the mining industry as President Evo Morales seeks to increase control.

The government seized the Vinto smelter from Glencore as part of a drive to control a greater share of the Andean country's mineral wealth.

2. Hedge funds and Speculative Interest

Tin rose to the highest since at least 1989 after one company held as much as nearly half of the stockpiles monitored by the London Metal Exchange. Tin's gains were probably because of buying from funds.

Several hedge funds active in tin and further speculative interest is expected on current prices: LME figures show only two market players holding 70% to 88% of all tin stocks.

3. Tightened Indonesian Export Regulation

Indonesia, the world's second-largest producer of the metal, tightened export regulations and registered all mining companies in a bid to curb illegal output. The government tightened rules on the domestic shipment of ore in a bid to prevent cargoes being sent overseas illegally. The rule, signed 30 April, is effective from 1 July.

From 23 February, only companies with licenses and that have paid royalties have been able to export refined tin. Indonesia started cracking down on illegal tin mining in October.

4. Amiss PT Koba Production

PT Koba Tin, the country's second-largest tin miner, halted shipments after three directors were held by police investigating illegal ore purchases.

The Koba Tin unit stopped collecting ore from small miners amid a police probe into whether it bought ore from unauthorized miners.

Koba declared force majeure, allowing the company to cancel delivery due to unforeseen circumstances.

Tin Usage

Used in cans and electronic soldering, tin demand grew last year as electronics manufacturers increased the tin component of solder to substitute for lead, a poisonous metal.

Ronald D’Britto is an Associate Manager, Multi-Commodity Exchange of India

By arrangement with www.commodityonline.com