The Tin Market's Slide Towards Being Canned

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One of the many small ironies of life presents itself at a recycling shop, where the owner will pay five cents for an aluminum can but takes tin cans for free. Tin sells for ten times as much as its sister metal thanks to its greater strength, durability, and electrical charge, meaning that a tuna can is worth considerably more than a case of empty soda cans even if the tuna can won't net you a penny. While the market for tin appears to be self-evident -- when will we ever stop putting food in cans? -- the numbers show that the metal actually stands in a critical decline. Tin lost over 50% of its value in 2014, the continuation of a four-year slide that saw the metal peak at nearly $15 per pound but today trades for merely $7.55 a pound. In one of the worst bear markets for base metals, can investors find a good strategy for profiting from tin?

Why Tin Is In

Pick up a brand-spanking-new iPhone and you'll hold the same alloy metal in your hand that your ancestors might have when they picked up a bronze knife or a shovel some 4000 years ago. Tin provided one of the great advancements in human history thanks to its ability to combine with copper and create the strong alloy of bronze. While tin quickly became phased out in favor of stronger iron, it has remained a staple of human industry thanks to its high melting point. Tin represents the sine qua non for the soldering together of metal parts including computer circuitry and vehicle components, since it's relatively easy to heat it up to 500 degrees with a blowtorch. About fifty percent of all tin produced world-wide goes to soldering, while the rest becomes bonded to steel to create durable containers (such as the aforementioned tuna). Up until 2012, China produced the world's most tin by a huge margin, annually digging up over 100,000 tons of tin, more than the next three nations combined and accounting for about a third of the global total. In recent years, the number-two nation of Indonesia has aggressively expanded their tin mining operations to compete and take over the number one spot, but the economic woes of tin have shown such practices to be, in hindsight, a poor decision.

The Rise and Fall

Like many metals traded around the globe, tin peaked in 2011 thanks to a combination of the humming Chinese economy and the surging production of mining-intensive nations like Chile and Australia. Where tin bucked the trend of falling in price after 2011 (at least temporarily) came in the metal's utility for new-age tech. Since tablets, computers, and flat-screen TVs all need tin for a variety of applications, the ever-growing tech bubble kept tin afloat for three years. Indeed, Indonesian export law kept global tin supply high after a 2013 law mandated that all tin must go onto domestic markets for sale before it may be exported. It becomes even more complicated (as it often does) because Indonesia has two stock markets, meaning that delay and stockpiles became common. The end result of the policy proved to be a 20% drop in tin exports. Lack of international supply contributed to double-digit gains up until 2014, when the market fell flat. Indonesia mined out too many of their rich nodes and could sell only second-grade ore at the same time that their labor prices rose and started moving above the break-even point. A Chinese policy of the High and New Technology Expense that offered 15% credit for the purchase of electronics went off the books in 2012, furthermore, causing a major tin market to fizzle.

Attempt To Correct

As tin fell throughout 2014 and 2015, companies with significant capital invested in tin mines attempted to cap their exports to keep supply low and prices steady. PT Timah, the largest tin cartel in Indonesia, set an export cap of 4500 tons per month in order to remain profitable. While the news could have rocked the market -- imagine if Barret set an export cap on gold, or Exxon-Mobile on oil -- it barely even raised a peep. In fact, tin dropped in value faster on the London Metal Exchange the day of the announcement than the day before. That's a reflection of Indonesia's relative lack of influence in global markets in addition to the belief that small companies making up PT Timah will cut and run as soon as they find themselves staring at red ink. They face the same core issue facing other mining companies in the current bear metals market: can you afford to stick it out and wait, or does cash flow trump long-term policy?

Investing In Tin

It's the norm to recommend buying into a commodity when it's at its lowest. Not so for tin, since we've yet to see the metal's floor. A steady decline in both tin as a raw commodity and tin futures suggest that there's a huge oversupply of tin today and an even harsher market correction can be looming. Hedge funds offering to short tin mining stocks represent the sole bright light at the end of this tunnel, since it's possible to get in on a good price now while tin mining companies attempt to leverage available capital to open new mines and stop the bleeding. Without collective caps, however, the tin industry will be set to take 2015 on the chin, much like they did in 2014. Compare tin to other base metals that have performed poorly since 2011 and it's clear that the current price represents just the tip of the iceberg. Unless a major market correction happens overnight or a company responsible for large amounts of supply goes under, tin faces a huge uphill battle to get back into profitable territory.

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