Ask a room of base metals analysts what they are bullish on, and you'll get a
tin ear. In fact, at the recent Inside
Commodities conference, that's exactly what happened.
For the most part, tin doesn't get a lot of attention. For the uninitiated,
tin seems like something for woodsmen and cups. But lowly, nonglamorous tin is
becoming increasingly important, overtaking lead as the metal of choice in
modern electronics soldering, especially after EU regulations requiring
lead-free solders was implemented in 2006. In 2006, tin accounted for 50% of
solders; in 2007, that market share grew to 52%.
This demand creep, however, isn't the sole reason for the positive feelings
toward tin.
"The reason people are bullish on tin is not a demand story; it's a supply
story," said Catherine Virga, an analyst with CPM Group in New York and one of
the participants on the Inside Commodities base metals panel.
And that supply story has been building for years. The top two producers of
tin are China and Indonesia, which combined in 2007 to produce 70% of the
world's mined tin, and actions in those two countries are starting to limit the
long-term supply picture.
China First
China was responsible for 40% of all mined tin in 2007. But during 2008,
China became a net importer of tin, whereas in the past, it was a net exporter.
Virga explains it this way: "China experienced quite a bit of supply disruption
this year, especially around the time of the Olympics."
The underlying reasons for the disruptions range from the usual suspects -
power shortages and environmental concerns - to some idiosyncractic,
Olympics-meets-tin specific ones. In other words, nobody wanted explosions going
off while the entire world was on Olympics-heightened security alert, even if
the explosions were intentional and controlled. As a result, mining was
reduced.
Beyond the Olympics, however, China is reacting to the steady decline in tin
prices. China's No. 1 producer of tin-Yunnan Tin-recently announced that it would reduce output of the metal by 30%
in the fourth quarter of 2008 because of price concerns.
Indonesia
In the case of Indonesia, the supply slowdown hasn't been because of Michael
Phelps. In 2006, Indonesia cracked down on tin producers for tax and
environmental reasons.
