Would tin continue to rule over other base metals this year?

LONDON (Scrap Monster): Will tin prices hit the $50,000 a ton mark?  Some experts believe so. The fundamental facts behind such a wild estimate is that the supply crunch this metal going to face in the near term, where demand and consumption is increasing day by day.

China is a prime importer of tin even though the country is the world’s largest producer, so domestic production has failed to keep pace with rising demand while Indonesia’s PT Timah, the world’s biggest integrated tin miner, shipped only 40,413 tons of refined metal in 2010 down from 45,086 tons in 2009.

In China production has been hampered by bad weather, particularly heavy rains and a long running crackdown on illegal mining, fuelling the prices.

Production has little chance of rising from current levels in the next few years, new resources are limited and it will take some years to bring significant additional production online. So the main hope in capping prices is a slowdown in demand. So far, only the power problems following Japan’s earthquake and tsunami are expected to have any significant impact as it temporarily slows domestic electronics production and consumption.

Lars Steffensen, managing partner at Ebullio, told the Reuters Global Mining and Steel Summit that he listed tin as his hottest metal for higher prices, above copper, lead and zinc. On the supply side you don’t see much light of a rising output as the mining is limited and new resources are yet to be found.

The only significant block to higher prices, apart from a global or at least Asian slowdown in demand, is a dropoff in investor appetite for the metal. But exchange open interest on the number of outstanding contracts on LME tin futures has risen to 20,795 lots, or 103,975 tons, from 15,992, or 79,960 tons, in early September when the latest price surge started.

There are commodity trading funds and hedge funds that are sitting there long, and which will want to sell at some point, and their sales volumes are not going to be absorbed by the market in one go. The main risk to the downside is that China slows under the double drivers of Japanese supply and demand disruption and over-zealous Chinese domestic credit tightening.

Indonesia has said it will get back in the producing game, and as the world’s No. 1 exporter, intends to roll out 90,000 tons of tin in 2011 after quite a shortfall. The country reported a 12.3 percent drop in production in 2010, to nearly 79,000 tons.

If investors see exchange traded stocks rising or import figures falling, there is the chance they will exit long positions and we could see a significant price correction to the downside. On the balance of evidence, however, it is not likely to be long lived, agmetalminer says.