Tin Prices Surge as Traders Battle Historic Supply Squeeze

(Bloomberg) -- Tin traders are facing one of the biggest squeezes in the history of metals markets as Covid-19 drives a spike in demand and supply falters.

That turmoil is capturing the attention of major investors who tend to overlook the critical but highly illiquid metal. Demand for tin, used in soldering, has surged amid booming sales of electronics in the work-from-home era. Coupled with disruptions to mine output and shipping routes, that’s left major European and U.S. consumers scrambling for metal as warehouses run dry.

Futures prices have rocketed nearly 25% on the London Metal Exchange to trade at nine-year highs above $25,000 a ton. Tin is the latest commodity to be roiled by the pandemic, following oil’s collapse into negative territory, the supply paralysis in top gold-trading centers and the cocoa market price war.

“Tin is relatively small compared to other markets, and people need to be aware of its potential to come and surprise you,” Charles Swindon, managing director of specialist minor metals trading house RJH Trading Ltd., said by phone. “We’ve had a lot of enquiries from non-traditional sources looking to buy from us, but there’s just very little metal around.”

Price rises for spot buyers of tin have been even sharper than the rally in futures, with contracts for short-term supply trading at unprecedented premiums to longer-dated prices. That condition, known as a backwardation, is a hallmark feature of a supply squeeze, and veteran traders say it’s of a scale that has few precedents in the 144-year history of the LME.

While the move has been driven by tightness in the physical market, some dealers have questioned whether the closure of the LME’s open-outcry trading floor and a switch to electronic pricing has exacerbated the volatility.

As a percentage of futures prices, the tin backwardation has been larger than one seen in the nickel market in the mid-2000s, which sent prices vaulting to all-time highs. That prompted the LME to take special steps to compel futures buyers to lend their positions back to the market to ease the strain on supply. The bourse has stepped up monitoring of the tin market during this year’s squeeze, but said it’s found no evidence that prices have moved out of line with dynamics playing out in the physical market.

Read: LME Boosts Tin Market Monitoring as Buyers Face Historic Squeeze

While tin is by far the best performing base metal on the LME so far this year, copper also hit eight-year highs above $8,600 a ton. Tin climbed as much as 3.7% to $25,470 a ton on Thursday, before trading at $25,280 as of 12:15 p.m. London time. Copper gained as much as 2.9% to $8,630 a ton.

With demand for electronics still booming and miners warning of further production shortfalls, a key question for the market is where fresh tin will come from to ease the strain on the LME.

On-warrant stockpiles hit a record low earlier this month, and in late January, as much as 90% of the inventory was held by one party, exacerbating the strain on spot buyers. That position has since fallen to 40% to 49% of the total, but even if it’s trimmed further, traders say fresh inflows will be needed.

“It’s difficult to predict how this will be resolved, but if prices move much higher than this then we could see some metal coming out of China,” RJH’s Swindon said. “It will take a while to resolve, and we’re going to need to wait for some new production to arrive.”

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