By Andy Home
Tin is once again failing to live up to its bull hype. The price of the soldering metal on the London Metal Exchange (LME) last month touched a 15-month low of $19,000 per tonne. Down by over 10 percent on the start of the year, it is vying with copper and lead for worst performer of 2014.
Yet back in January analysts in the Reuters poll picked tin as a likely positive performer this year, based on a near unanimous view that supply would fail to meet demand.
Tin’s supply challenge, a combination of depleting grades at existing producers and a lack of new mines, is a core part of this metal’s bull narrative.
So too is Indonesia, the world’s largest exporter. The country has exerted increasing control over the band of free-wheeling producers operating out of the tin-rich islands of Bangka and Belitung.
The government has introduced new minimum purity standards on exports and required everything that leaves the country to be first traded on a local bourse, the Indonesia Commodity and Derivatives Exchange (ICDX).
The explicit aims are to increase the value of the country’s minerals exports and to instil some environmental discipline over producers. The implicit aim is to achieve higher prices, wresting pricing power from the “speculators” on the LME in favour of industrial players trading on the ICDX.
Quite evidently, things are not going to Indonesian plan. But which has stymied tin’s bullish prospects this year? Funds or fundamentals? Or both?
Speculative money flows on the LME can now be tracked thanks to the exchange’s new Commitments of Traders Report (COTR).
The report by its very nature can only offer a partial picture on the complex positioning landscape on the LME, but the “managed money” component is a relatively clean prism through which to see investment flows.
Although tin’s occasional illiquidity deters many larger investment players, the LME’s COTR still shows over 90 currently active money managers.
And, it is clear from the graphic below, they have been steadily trimming long positions and adding to short positions since around the start of August.
Indeed, the net long position shrank to just 0.6 percent of open interest at the end of October. It recovered marginally to 1.5 percent in the first week of November but is still the lowest of any of the major LME metals.
The shift in positioning neatly dovetails with tin’s price performance over the same period, the market breaking down through support at $22,000 late in August and accumulating downside momentum until that mid-October low down at $19,000.
Indonesians, government officials and producers alike, will likely view the linkage as proof that “speculators” have stymied the price to the point that the country is now actively considering withholding supply from the market as a way of supporting prices.
Yet, while short-selling by money managers does seem, at the very least, to have exacerbated the price breakdown since August, it’s worth considering the lay of the land before then.
The LME only launched its positioning reports at the end of July but at that time the managed money net long position on tin was over 14 percent of open interest. Only zinc boasted a higher net long ratio.
Back then, it seems, “speculators” were actively supporting the tin price above $22,000 per tonne, in effect working with the Indonesian authorities, who have used a “suggested opening bid” on ICDX trading as an unofficial floor price.
It’s still noticeable, by the way, how many funds have kept the tin faith on the LME. The shift in net positioning has been much more about new shorts being initiated than old longs closed out.
So, how come the price wasn’t going higher if both London funds and Indonesian authorities were on the same side?
The simple answer is fundamentals. And particularly those of supply, given tin’s bull story rests not on its somewhat unexciting usage profile but on its supposed lack of new mines.
Firstly, despite Indonesia’s best efforts to limit exports, including a brief moratorium on sales in September, shipments have fallen by only a marginal 10 percent so far this year.
Indeed, there is a strong suspicion that the official figure of 65,575 tonnes is an undercount. The official figures are provided by the Ministry of Trade and denote what is being registered and checked under the country’s new export regime. Other forms of tin, such as solder or alloys, may still be seeping out of the country.
Certainly, the Indonesian police suspect as much, which is why they swooped on 2,000 tonnes of outbound shipments in September.
The authorities evidently have their suspicions as well, which is why the export regime is being tightened up further this month.
And while Indonesia struggles to control what its own industry is up to, it has even less say over what other countries do.
Reuters
