But Virga says this is changing: "The government has
slowly been reissuing permits, but it's not completely back up to previous
levels."
On top of that, the recent low prices have raised concern among producers,
just like in China, so much so that the government recently announced that it's
considering capping tin production for 2009.
Not waiting for government intervention, a group of small Indonesian tin
smelters (known as PT Bangka Belitung Timah Sejahtera) agreed to halt production on October 22 to help stem the
price decline, taking 3,000 metric tons a month out of the market. The
consortium is looking for an $18,000-per-ton price in order to resume
production. Quite a bump from the $15,000 prices we're currently seeing.
Prices have continued to decline even after production cuts, and now PT Timah
(not to be confused with the group above), Indonesia's largest tin producer, may reduce its output to 45,000 tons of refined tin this
year, down from an expected target of 50,000 tons. While this may not seem
like a big reduction, it is a large decline from PT Timah's record 2007 output
of 58,325 tons.
With production declines occurring in the largest-producing countries, the
rest of the world's production becomes more important to global supply.
Enter Congo
The Democratic Republic of the Congo was the fifth-largest producer of tin in
2007. "The Congolese government had planned a ban on exports of tin in certain
provinces in 2009 as a way to encourage the further refinement of tin in the
Congo," explains Virga. "This would have allowed them to benefit from the higher
prices for refined exports."
But now it's the constant civil war and tumultuous political situation that
is affecting exports. Many tin-producing areas are in locations with the most
dangerous conflicts.
All of this has combined to drive tin stocks down to their current levels.
An Opportunity
So the question becomes, with low stocks and low prices, is this an
opportunity?
"The market is expected to be in deficit," says Virga, "even with the
less-than-1% growth in demand that the market is expecting."
In fact, tin has been in deficit every year since 2006.
But even with this expected deficit, there's no sign of supply catching up,
which does point to an eventual opportunity.
Virga is quick to point out this isn't an immediate get-rich-quick
opportunity. "No large surge in price is expected anytime soon because of the
economy," she says.
Still, the fact remains that tin is living in an extremely rare fundamentals
position: dwindling supply, steady-state demand and an extremely suppressed
price. Maybe no jump is imminent should the global economy continue to flounder,
but the fundamentals are in place for a price jump when the recovery starts. For
investors looking to take advantage of that jump, the easiest way is to purchase
the iPath Dow Jones-AIG Tin Total Return Sub-Index ETN (NYSE Arca: JJT),
launched by Barclays Global on June 26, 2008.
