Industrial metals have been on somewhat of a bumpy road so far in 2013, though recent price movements in the copper market have made investors think twice about this corner of the commodities world. Last week, copper futures soared after several encouraging reports from China, the world’s second largest economy and one of the largest consumers of the metal, helped boost optimisim for copper demand. Though copper’s outlook has improved, there is one industrial metal that has not benefited from the rally: tin [for more industrial metals news and analysis subscribe to our free newsletter].
Though often overlooked, tin has long been an appealing choice for commodity investors thanks to its widespread use in industrial applications and its inflation-hedging capabilities. A recent report by Morgan Stanley, however, indicates that there may be trouble ahead for the silvery white metal.
Indonesia, the largest shipper of tin, recently reported exports of the metal jumping 20% to 26,805 tons in the first quarter, marking the highest level on record for the period. On May 1st, however, tin plummeted 20% from its closing high on January 18th, placing the metal in bear market territory. Morgan Stanley notes that such a drastic decline in prices will likely curb shipments from Indonesia, since suppliers are quick to respond to lower prices [see also Precious Metals Look Golden For Market Bears].
New regulations from the Indonesia’s 30-member tin mining association also pose several problems for the metal. New rules will force smelters to increase the tin content of cargoes and reduce lead and cadmium levels, which will ultimately force them to produce higher-grade tin, but at a higher cost.
As such, producers have already started cutting stockpiles and production; Morgan Stanley estimates that this year’s supply shortage will be around 800 tons, while consumption is estimated to rise 5.8% to 358,000 tons.
And while tin futures are not reflecting the predicted shortages now, investors may want to keep a close eye on the metal to see how the rest of the year pans out.
For those looking to track price movements via exchange-traded funds, the Dow Jones-UBS Tin Total Return Sub-Index ETN (JJT) is currently the only option. So far in 2013, the fund is down nearly 14%:
Disclosure: No positions at time of writing.