The commodities bull market that began in spring 2020 may be over – or just consolidating, depending on your point of view.
But there is one metal for which the only way is up, as the song goes. And that is tin.
Energy, metals and soft commodities could all go into bear markets and lose 30% or even 50%. The US dollar index could go back above 100. Interest rates could rise. I still think tin goes higher. The shortage of supply is that pronounced.
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So today we consider the metal of Jupiter that gave rise to the Bronze Age.
Why the tin story looks so good
Tin is in the sweet spot. Demand is rising but supply is not, thanks in part to decades of underinvestment. The result is that, as Macquarie puts it in a recent report, “tin prices have been lifting month by month since April 2020”.
Annual tin demand stands at around 350,000 tonnes. The biggest producer is China (85,000 tonnes in 2019), followed by Indonesia (80,000) and Myanmar (54,000). China, surprise surprise, is also the biggest consumer and, despite being the biggest producer, is a net importer.
Demand comes from the electronics industry mostly, and shows no signs of abating. Solder accounts for around 50% of annual tin demand, with batteries, tinplate, chemicals and “other” making up the rest, according to a recent report by Macquarie.
With the global roll-out of 5G and the drive for greener technology, demand is set to increase, especially in solder, by 20% by 2025, says the International Tin Association, to somewhere near 450,000 tonnes. There is no substitute; tin is essential to the low carbon economy. Without it electrons don’t flow and electric-vehicle batteries don’t charge.
Supply, whether from mining or recycling, cannot keep pace. Indeed, disruptions to supply are ongoing. Following depleted production in Indonesia due to heavy rain in 2020-2021, the latest upsets are a mining shutdown in China’s Yunnan province for planned maintenance (the real reason probably being a Covid outbreak). The Malaysia Smelting Corporation also closed for 45 days due to Covid, maintenance issues and lack of feed and labour shortages in Myanmar – all key tin mining jurisdictions.
Warehouse stocks on the London Metal Exchange stand at around 2,000 tonnes and in Shanghai at around 3,000 tonnes – that’s no more than two or three days’ supply. The result is that the tin market is now in “backwardation”. That is to say spot prices (tin for immediate delivery) are higher than futures prices. That is a rare and bullish situation.
Tin for immediate delivery is $32,758 a tonne. Three-month futures stand at $31,716. You can buy tin now for delivery in 15 months at $27,613. The futures market, then, is predicting that these supply shortages won’t last. Hmmm.
The all-time high for spot tin in 2011 around $32,000 was briefly exceeded last week.
“Consumers are totally destocked,” says mining analyst Mark Thompson. “Producers are totally destocked. Traders are totally destocked. Demand would be running at about 1,050 tonnes per day, but supply is only around 950 tonnes per day.”
Three ways to invest in tin
So how to play it? There aren’t a lot of options. Buying physical tin or futures is not really an option, so you have to go with the miners, which are currently trading at prices concomitant with the futures markets – in other words, they’re priced as though the shortage of supply is temporary.
If you are able to buy Canadian stocks, perhaps your first port of call should be Alphamin (TSX-V: AFM). It’s also listed in South Africa on the Johannesburg Stock Exchange AltX (Johannesburg: APH). With a market cap of around C$850m, geology-wise, its Mpama North mine is probably the world’s best tin deposit.
Its main drawback is that it’s in the Democratic Republic of Congo, which is not top of most people’s list of go-to jurisdictions when it comes to investing. But when it comes to tin, beggars can’t be choosers. This is a low-cost producer mining high-grade metal, and a rare producing pure play.
It needs to sort out some communication basics – like putting its ticker next to its name on its investor presentation – but hopefully investor relations will be reading this and sort out such kindergarten stuff. I own this one.
There are two UK-listed pure plays at the more speculative end of the market. One is Afritin (LSE: ATM), which is in the early stages of production / late stages of development, depending on if you’re a glass-full or glass-empty kind of person, with its Uis project in Namibia. I own this one as well.
Often you get more leverage in bull markets by buying high-cost producers. Let’s say a company mines a metal for £70/lb and sells the metal for £100/lb. It makes £30/lb. The price of the underlying metal goes up to £110/lb, and so the profits of the company increase by a third.
Now let’s say a company mines the metal at £90/lb. If the metal price goes to £110/lb its profits double. High-cost producers can be very rewarding in bull markets. In bear markets, however, you can get destroyed.
Afritin’s flagship Uis project is a little too dependent on the lithium and tantalum by-product to be economically viable for its tin alone at $25,000 or $30,000 a tonne. But if tin goes to $40,000 or $50,000, then suddenly Afritin becomes a multi-bagger winner.
The other to look out for is Cornish Metals (AIM:CUSN, TSX-V:CUSN), which is developing tin properties in – well, I’ll leave it to you to work that one out. Some encouraging recent drill results, some well thought-of properties in what must be considered the home of tin, and well capitalised, this is another speculative means to get exposure to the tin story. I don’t own this one, though I probably should.
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
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