A single investor – thought to be a hedge fund – is sitting on thousands of tonnes of tin in warehouses across London. According to traders almost the entire stocks of tin on the London Metals Exchange (LME) was bought up by a single, mysterious investor, last week.
One fund has warrants for more than 90pc of all physical tin stocks because the market rules dictate that above this threshold, the buyer must lend out the commodity, if asked, at the cash price with no premium.
Industrial buyers are furious that they are paying up to $730 per tonne for immediate delivery more than it would cost them to buy three-month futures contracts, arguing this stranglehold on the market should not be allowed to happen.
Contango – where spot prices are lower than forward prices – is considered normal for tin because of the interest, warehouse costs and insurance incurred in carrying the metal. Backwardation – which is happening with tin today – is a sign of shortages to come.
Traders are also claiming that prices have only inflated so high – at other times plunging to extreme lows – because the dominant position has made the market illiquid and disorderly with distorted prices.
“It’s a ridiculous situation to have when there is clearly not a shortage of tin and the LME is refusing to admit that anything’s wrong,” said one metals trader.
So why would a fund take the decision to stockpile a metal when there is an enormous surplus of tin around the world?
At the moment, tin for three-month delivery is trading at above $14,000 on the LSE, a 40pc rise in prices after a 35pc drop last year.
But the mysterious buyer is clearly convinced that the commodity’s price has further to soar.
China, the world’s biggest consumer of tin, has already fired up its consumption sharply this year. The nation’s imports more than doubled to 18,222 tons in the eight months to August, according to customs data. And its purchasing managers index shows that China’s manufacturing expanded for a seventh month in a row in September.
PT Timah, the world’s second largest producer of tin, last week forecast that global consumption will jump by 7pc in 2010 and the company’s stock has advanced 99pc this year.
Global demand for the metal, primarily used for soldering and making tin cans, is expected to rise to 320,000 tons compared 300,000 tons next year.
Timah’s president director Wachid Usman believes that next year’s demand will be supported by China, Korea, Taiwan and Japan – no surprises there.
Just over a week ago, Macquarie Bank raised its 2010 tin forecast by 6.9pc to $6.75 a pound, or $15,120 a tonne, due to a stronger-than-expected rebound in Chinese economic activity.
Add to this the fact that Indonesia, a major tin producer, has started a fresh crackdown on illegal tin mining, making several arrests in August. Cynics claim the ulterior motive is to reduce supply and support its export prices, meaning there will soon be less tin on the global markets.
The mysterious tin buyer clearly subscribes to this view and that the current oversupply is not here to stay.
But Neil Buxton, managing director of GFMS Metals Consulting, believes that the fund is playing a risky game that will soon come to an end one way or another.
“It’s easier to do with tin than copper or aluminium because those would be prohibitively expensive,” he explains. “But it could backfire if the LME set conditions against that position. It’s understandable that traders are concerned but my view is that it’s going to be relatively shortlived and the backwardation is going to revert to its normal state, which is contango. At the moment, it’s good for sellers, not great at all for the buyers – but this will change.”
The LME certainly believes that there is no need to interfere in the market. Trading is still continuing, mostly where contracts for tin are only borrowed from its ultimate owner and there are some signs that the mystery buyer may have offloaded some of its stock.
“The traders are only complaining because they have called it wrong,” one senior source at the LME said. “Rather than admit this, they are saying there’s something wrong with the market. The building up of this position was no secret because we publish a lot of information about the market. You can’t call it disorderly at all.”
Whether the dominant position causes real shortages or not, worsened by rising Asian demand, it looks as though the traders can angrily bang their tin drum all they like. The LME seems intent on ignoring the fact that the metal, still in surplus above the world’s needs, does indeed appear to be artificially overpriced.
Leaves on the line
It’s not just a storm in a tea cup. Worldwide shortages of black tea leaves, which have pushed prices up 25pc this year, are translating into higher prices for a Great British brew.
Research by Mysupermarket.com shows that retailers are charging an average of £4.85 for 240 teabags, compared to £3 a year ago.
The surge in prices began in May, when auction averages soared to record levels, on the back of unseasonal droughts and shortages of fertiliser caused by high oil prices. Now experts are even saying that stocks may drop 10pc next year. Meanwhile demand, especially in emerging markets has continued to grow.
By Rowena Mason
Published: 6:31PM BST 04 Oct 2009 Cornwall in 1998
Source: The Telegraph