Tin Man Maw
Tin Man Maw
How artificial intelligence and an artificial supply crunch might disrupt the market for the forgotten metal.
“Nobody cares about the bronze or silver medals.” – Buzz Aldrin
In October of 1985, executives at the London Metal Exchange (LME) received a disturbing phone call. The most important player in the tin market dryly informed the exchange that he had “suspended trading,” precipitating an immediate crisis that threatened to destroy the LME itself. Having gotten over his skis to the tune of £900 million—considered a massive sum until quite recently—the trader’s default left a daisy chain of counterparties in his wake that were now suddenly at risk of insolvency, including roughly half of the LME’s ring dealing members. Within minutes of that call, the LME did the unthinkable and suspended trading in the tin contract, a halt that would last several years. An international brawl ensued.
The busted whale was no ordinary trader. He was Pieter de Koning, manager of the buffer stock belonging to the International Tin Council (ITC). The ITC was a unique cartel in that it had been set up by a combination of the world’s largest producing and consuming nations under a rolling series of International Tin Agreements (ITAs). With a mandate to support tin prices within a range acceptable to all parties, de Koning’s credit was backed by these 22 sovereigns. Faced with global oversupply and falling prices, de Koning essentially wrote checks he couldn’t cash to acquire title to increasing amounts of metal until market forces overwhelmed him. When the sovereigns unexpectedly balked at backstopping the losses, the ITC collapsed, ending its nearly three-decade role in managing the tin market. The sixth ITA, signed four years earlier in 1981, would be the last.
As John “Sir JJ” Johnston, our friend and author of the excellent new Substack Market Vibes, told us via private correspondence, the tin market is “notorious for trouble.” A 50-year veteran of commodities trading who currently holds no position in the metal, Sir JJ pointed to a further breakdown in 1990 “that took nearly a year to unwind.” In comparatively thin markets where participants can stand for physical delivery, all manner of chicanery is possible, and efforts to prop up, suppress, or even corner the tin market are common. Just this spring, market participants noted that a single bullish investor was “holding at least 40% of long positions on tin for May delivery,” triggering fears of a short squeeze like that in the nickel market of 2022. Although a full-blown squeeze did not materialize, tin prices are up more than 30% this year.
The fate of speculators in this relatively obscure bazaar is made newsworthy by dint of tin’s role in the modern economy. Nearly half of all global tin demand is in soldering applications, where it enables the precise connection of delicate electrical components. This is highly valuable in the assembly of semiconductor devices, where its low melting point and excellent bonding properties make it a well-suited material. Tin is also widely used to protect steel and other metals from corrosion via a process called tinplating, commonly used in beverage cans. Finally, tin is critical to the chemical industry, where catalysts derived from the metal are used to synthesize all manner of specialty polymers and other materials.
Over the past year, events have been unfolding in the global tin trade that are causing some to speculate whether yet another crisis might be brewing. It is a story of a failing state in the throes of an ugly civil war, the absence of a critical source of supply, and the stress of demand escalation just as alternative stocks are being depleted. Sufficiently intrigued, we set out to learn more.