The three-year lows in the tin price hasn’t been driven by any fundamental supply/demand issues, but rather by technical trading.
That’s the call from Andy Home who, writing for Reuters, argued that the current bearish lows for tin didn’t make a whole lot of sense on a fundamental level.
“It’s hard to square such supply-side dynamics with the severity of last week’s price fall,” he wrote.
“Even allowing for a subdued demand outlook, this is a market that is struggling with deep-rooted production issues.”
He pointed to supply issues in Indonesia in particular — with a 9 percent drop in volumes from Indonesia for the first half of this year.
“Indonesia’s export flows have a history of volatility but this year’s decline is noteworthy given the country’s producers had the same LME price incentive to ship stocks as those in China,” Home wrote.
Instead, he pointed the finger at traders in China building short positions and the then executing with volume — which drove the sharp decreases in tin in recent times.
However, it’s a play which can’t be repeated.
“The question now is whether prices can recover from what has in the past proved to be a producer pain point,” Home wrote.
“If not, a good part of the world’s production is under water at this level, placing further pressure on already strained supply.
“It remains to be seen how this plays out, but China’s tin bears may want to book their profits sooner rather than later.”
Should Home’s thoughts play out, tin could be a good buying opportunity in the short term.
While investors could get into the commodities trading market, there are also several ASX-listed tin companies which offer exposure.
For example, Stellar Resources (ASX:SRZ) is exploring the high-quality Heemskirk project in Tasmania.
Heemskirk is the highest grade undeveloped tin deposit in Australia and has excellent potential for resource expansion.
This content is produced by Star Investing in commercial partnership with Stellar Resources. This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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