By Andy Home
LONDON, Jan 16 (Reuters) - The tin market has kicked off the new year in explosive form, prices racing to all-time nominal highs on both the London and Shanghai markets.
The rally is “unreasonable”, according to the state-backed China Nonferrous Metals Industry Association (CNMIA). It warned all parties last month to “avoid blindly following the trend”.
Beijing’s admonition hasn’t in any way deterred Chinese investors from doing just that and chasing the price ever higher.
The volume of trading on the Shanghai Futures Exchange’s (ShFE) tin contract (SSNc1) exceeded a million metric tons on Thursday. That’s more than twice the world’s annual physical usage.
Tin is clearly in a speculative bubble, which will burst just as soon as the trend turns. But the mismatch between the size of the physical market and investment interest foreshadows more volatility ahead.
And not just for tin. Given the tidal wave of investor buying washing through the industrial metals sector right now, tin’s current toil and trouble may be a harbinger for other metal supply chains.
<h3>IRRATIONAL EXUBERANCE</h3>
The London Metal Exchange (LME) tin contract has been bubbling away for several months but turned supernova this week as Chinese investors brought their considerable financial firepower to the rally.
LME three-month metal (CMSN3) took out the previous March 2022 price peak at $51,000 per metric ton on Tuesday and leapt off the charts to $54,760 on Wednesday.
The driving narrative is one of supply shortfall.
Tin’s structural supply issues are well known. Global mine production is too concentrated in too few countries and heavily dependent on frontier jurisdictions such as the Democratic Republic of Congo and the semi-autonomous Wa State in Myanmar.
But this rally is ill-timed.
If anything, the tin supply picture has been improving over recent months.
The threat to Congo’s Bisie mine from the M23 insurgency has receded since the site was in danger of being overrun a year ago. Indeed, mine operator Alphamin Resources (AFM.V) raised its annual production guidance after a strong third quarter performance.
The giant Man Maw mine in Myanmar is also showing signs of renewed productive life after a prolonged absence. China imported 7,190 tons of tin raw materials from its neighbour in November, the highest monthly tally since August 2024.
And while Indonesia’s crackdown on illegal mining continues, the flip side is an expected increase in official-sector production quotas from 53,000 tons in 2025 to 60,000 tons in 2026, according to the Indonesia Tin Exporters Association.
Nor is there any scarcity of refined tin right now.
Producers and traders have delivered significant amounts of metal into the price rally. Combined stocks held by the LME and ShFE have risen from 11,000 tons at the end of October to over 19,000 tons.
At the time of tin’s previous 2022 peak, inventory was under 5,000 tons.
So when China’s state metals body describes tin’s super-charged price performance as “unreasonable”, it may have a point.
<h3>LIQUIDITY MISMATCH</h3>
The problem, to paraphrase economist John Maynard Keynes, is that a market can remain “unreasonable” longer than you can remain solvent.
Particularly if it’s a small market such as tin, where investors can have an outsize price impact.
This is clearly the case in Shanghai right now.
Such speculative surges have long characterised China’s commodity markets. Last year it was alumina.
The Chinese authorities have gone into well-practiced fire-fighting mode, raising trading margins, particularly the cost of intraday trades, and limiting position sizes for non-members.
But it’s not just the Chinese who have been drawn in by tin’s narrative of constrained supply and growing usage as a semiconductor solder.
Fund participation in the London tin market has been steadily rising over the last couple of years.
When tin prices last scaled such giddy heights in late 2021 and early 2022, the investment fund long position peaked at 2,887 contracts, equivalent to 14,435 tons. At one stage last month, the investment long position rose to a record 5,753 contracts, or 28,765 tons.
The liquidity rush has injected more volatility into a market with a history of price wildness.
The futures frenzy poses very real-world problems for the physical supply chain as producers and consumers struggle to finance margins against their hedges.
When does liquidity risk override price risk? Or, how long can you remain solvent?
<h3>FUNDS AND FUNDAMENTALS</h3>
A few years ago no one paid much attention to tin. The market was too small, both in terms of physical volumes and futures activity, to qualify for investment with most fund managers.
That is changing as the world wakes up to tin’s central role in the coming Internet of Things Age. No circuit boards, no internet. And very little else in our hyper-connected world.
But the result is too much money flooding into a market ill-equipped to handle it.
CNMIA, which speaks on behalf of both the world’s largest refined tin producer and user, is clear about the dangers posed by the current exuberance.
“The rapid price surge driven by funds has deviated from industry fundamentals, significantly magnifying market risks and harming the global industry chain.”
As fund money pours into the industrial metals complex in search of hard assets other than gold and silver, tin’s drama may serve as a timely warning for other in-demand metals such as copper.
Andy Home is a Reuters columnist. The opinions expressed are his own Enjoying this column? Check out Reuters Open Interest (ROI) for thought-provoking, data-driven commentary on markets and finance. Follow ROI on LinkedIn and X.
Irrational exuberance on the Shanghai tin market
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Tin stocks surge as price hits record highs
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Funds held a record long position on the LME tin contract in December
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(Editing by Marguerita Choy)
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ROI-Tin price bubble spells toil and trouble for global industry: Andy Home