đ„« Your Guide To Investing In Tin â Another Base Metal With Important Industrial Applications, Most Notably In New Electronic Technologies
Brief Background
Tin is actually chemically similar to lead, and tin-lead alloys were pretty common in the past, used in numerous industrial applications, most notably as a solder. However, due to regulatory requirements and the environmental & health risks, lead use in consumer electronics diminished, which led to tin commanding a larger market share of the solder market making up to roughly half of the worldâs demand for tin. You might be surprised to know that tin canned goods make up a smaller percentage of tin demand. This is because cans are usually made of steel, with a tin coat to protect the steel from corrosion and to preserve the contents in the can.
What Can It Do For You
đ§ș Portfolio Diversification. As always, adding commodities to your portfolio can help diversify and lower risk. Adding tin to your portfolio means owning an asset that tends to act differently to other asset classes, and even to other commodities.
đ° Profit. As you can see from the price chart below, like with other commodities, tin has undergone periods of volatility, particularly with the recent price spike, providing opportunities for speculation and profit. Generally speaking, tin prices have been supported by the electrification and digitalisation of global society, since tinâs use case have continuously adapted to tech innovation, as highlighted in a graph several sections below. Overall, there are a number of trends that can act as support for tin prices going forward. These include growing demand from the electronics and housing construction industries in emerging economies and tin-based products in future tech, such as lithium-ion batteries, energy generation, storage and infrastructure, and computing and robotics. However, there are a number of risk factors that can put downward pressure on prices, especially as it has reached a 10-year price high. These include substitute availabilities (like aluminium), overproduction in response to rising tin prices, and the miniaturisation of electronic products.
What Caused The Recent Price Spike?
As always, it comes down to supply and demand. On the supply side, because of the pandemic and lockdown measures, major tin producers had to shut down. This led to a shortage in tin supplies, and meant that consumers had to take out tin stock reserves from LME warehouses. Though prices did dip briefly, it recovered and rebounded shortly after, reaching 10-year highs.
Additionally, since most of the worldâs tin produced is based in Asia, there are logistical issues with shipping the metal out, partly due to a shortage of shipping containers, causing delays and high shipping fees.
On the demand side, there were two factors that helped boost tin prices â the housing market & high demand for consumer electronics. Roughly half of the worldâs tin is used as a solder to connect various metal components together, such as connecting chips and wires to circuit boards. During the pandemic, there was a surge in consumer electronics, which then increased demand for tin. On top of this, the pandemic helped spark a housing market boom as people moved into less urban areas, and as people are reluctant to list their homes in the market. Tin can be used in drainpipes and as cladding for new homes to make the plastic material more resistant to heat and temperature fluctuations. So, the booming housing market also increased demand for tin, contributing to its price spike.
What Affects Tin Prices
There are several key factors that are involved in moving the price of tin:
- đšđł Chinese Production & Demand. Like with a number of other commodities, China is both the worldâs biggest tin producer and consumer, accounting for about 30% of the worldâs supply, according to the USGS. Any disruptions in supply or demand in this country can have an impact on prices.
- đźđ© Indonesian Production. Though China is the biggest tin producer, Indonesia is a close second, producing roughly 24% of the worldâs supply. The issue here is that Indonesia is relatively geopolitically unstable, facing issues such as natural disasters (earthquakes, monsoons, excessive rainfall, etc.) and corruption. So, events in this country that can affect its production capacity can have an impact on prices.
- đïžGovernment Policy. Things like subsidies, tariffs, restrictions, and trade policies can definitely have an impact on tin prices. For example, in 2012, Indonesia closed roughly 70% of its smelting capacity due to low tin prices, as reported by Bloomberg. As a result, this helped tin prices as it made a rebound later that year.
- đ Substitution. Like many other metals, tin faces a number of substitutes for many of its applications. For cans & containers, aluminium, glass, paper, or plastic can be used instead of tin. For soldering, epoxy resin. For alloys, other metal alloys can be used, such as copper-base or aluminium-base alloys. For chemicals, other metal-based compounds can be substituted for certain tin-based chemicals. For batteries, lithium-ion batteries poses a big threat to lead-acid batteries, though the economics and supply chain issues that the lithium industry is facing may prove to be a disadvantage for some.
- đ Stock Levels. Tin stock levels can be a factor in moving tin prices as it can be a key indicator on supply and/or demand levels, which can then lead to speculation in the market. The LME (London Metals Exchange) monitors world tin inventory levels held in their warehouses and publishes data in their stock reports.
- đ·ïž Production Costs. Input costs such as the cost of electricity, coal, and crude oil can have an impact on tin ore extraction and refining into various refined tin products. Furthermore, recycled scrap tin metal can also impact prices as it adds to supply in the market. According to the International Tin Association, approximately 30% of tin comes from recycled sources.
What Is It Used For?
Surprisingly, most of the worldâs tin demand isnât for canning foods and beverages, but rather, for soldering. Below are some of its uses.
- 𧔠Solder. Almost half of the worldâs tin is used as a solder, a fusible metal alloy used to, well, fuse various metal components together. For example, a solder can be used to join a wire to a pin on a circuit board. This is important because of all the tech innovations at quite a fast pace (think 5G, electric vehicles, green energy-related infrastructure, etc.). On top of this, solders are used in other industries too, like plumbing and general metal working.
- đ§Ș Chemicals. Various tin chemical compounds are used in a number of industries, including electronics, textiles, plastics, and pharmaceuticals.
- đ„« Tinplate. Basically canned products, tinplate is just metal containers (usually steel or aluminium) that are coated with tin to prevent corrosion and for preservation. The most obvious example are canned food and beverages, but also cans for various chemicals, paints, and dry products too.
- đ Batteries. A decent percentage of the worldâs tin is used in lead-acid batteries. For example, tin is alloyed with lead and calcium to produce batteries with a longer shelf-life, as well as maintaining a high voltage throughout its product life cycle. More information about this here.
- đ Alloys. Like other base metals, tin can be combined with other metals to enhance and improve certain properties. These alloys are used in numerous industrial applications, including batteries.
- ⥠New Opportunities. As tech develops and innovates, there are potentially new opportunities that could increase demand for tin. These include alternatives to lithium ion batteries, solar panels, hydrogen production, fuel cells, water treatment and carbon capture. More can be found here.
The Case Against Tin
There are a couple of risks involved if you want to get involved with tin. Firstly, there are substitutes that can replace tin in certain applications. For example, aluminium and tin-free steel can be used to make cans and containers, and other metalled alloys can be used to replace tin-based alloys. If prices rise too high, this could incentivise consumers to switch to alternatives, lowering demand.
Additionally, as tin prices reach 10-year price highs, there is an eventual risk of oversupply as suppliers are incentivised to open new projects and increase production, which will be reflected in market supply further down the line. If demand were to stay the same, or not keep up with an increase in production, then this could put downward pressure on prices.
Last but not least, over the past decade, weâve seen a general trend of miniaturisation of electronic products, such as computers and phones. As consumer electronic products get smaller, this means less tin is required to solder components together, which could certainly lower demand. That being said, this issue could be negated by growing demand in emerging markets.
The Case For Tin
Firstly, like other commodities, tin can serve as a portfolio diversification tool & a hedge against inflation. Overall, the main long term trends that can act as support for tin prices include growing demand from the electronics and housing construction industries in emerging economies, and tin-based applications in future tech, such as lithium-ion batteries, energy generation, storage and infrastructure, and computing and robotics.
Over the medium to long term, as emerging economies grow and urbanise (particularly in the Asia Pacific), demand for electronics and housing construction projects is expected to increase, and is projected to be a major driver of growth for the tin market. As it stands, China is the biggest consumer for tin-based solders, followed by North America, and then by Europe.
Furthermore, as tech continues to innovate and develop, research suggests that tin can certainly play a part in and contribute to this drive. As a soldering material of choice, tin can certainly support all electronics-related products and infrastructure, including 5G networks, lithium-ion batteries, larger scale energy storage, solar photovoltaics (solar panels), fuel cells, hydrogen generation, water treatment, and carbon capture. If tin becomes the ideal metal of choice in the development of these fields, then demand will certainly increase, and could support tin prices. More about this here.
Popular Ways To Invest In Tin â Pros/Cons of Each
Here are some of the more popular ways in which you can invest in tin.
- Physical Tin (Bullion Bars). You can buy and directly hold physical tin bullion bars. Thereâs no doubt to the ownership of these assets, and is reliable. However, you may want to consider storing in a secure storage facility rather than at home. Further, you may be faced with several fees â the cost to convert raw tin ore into finished bars tends to be passed on to you, as well as commission fees for the broker acting as the middleman. Selling it may also prove to be an issue as the broker may buy it back at below market prices. Be sure to find reputable sellers for a greater degree of transparency in the sales process.
- Tin ETFs. There are tin ETNs that tracks tin price movements through tin futures contracts, which means you will have direct exposure to tin prices. Nevertheless, these ETNs are traded on stock exchanges, so theyâre very easy to buy and sell. However, there are no assurances that you actually own the physical metal. You also probably wonât be able to take delivery of the metal. Depending on which broker you go with, you may be charged with trading commissions. ETNs also charge an expense ratio, or management fee that gets taken out of their total holdings and is then reflected on your account. Whichever ETN you choose, be aware of the fine print â the risks and costs.
- Tin Stocks. These are shares of companies that have exposure to tin prices, though most of these companies are based in emerging markets. They also donât necessarily follow the price of tin there are other factors that need to be taken into account, such as company profit and revenue, other metals and products they might be involved in, etc.. Because of all this, youâre exposed to a greater number of risks involving company profitability, exposure to price movements of other metals, etc. There are no fees, apart from trading commissions depending on your broker. You may want to consider looking at the companyâs annual reports (especially operational costs), portfolio of what mines they have, the other metals they produce, and potential expansion plans.
- Tin Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell tin at a specified time in the future with an agreed-upon price. The London Metals Exchange (LME) offers these contracts, each representing 5 tonnes of tin. These futures contracts are physically settled after the contracts have expired. Because you are using a significant amount of borrowed money, even small price changes in tin can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.
TL;DR â Is It The Right Investment For You?
As always, it depends on what your aims are. Similar to other commodities, tin can be used as a portfolio diversification tool to spread your exposure to different kinds of assets.
Overall, trends that can act as support for tin prices include growing demand from the electronics and housing construction industries in emerging economies & tin-based applications in future tech. However, as it stands, tin prices have reached a 10-year price high, which may increase the risk of substitution to other metals, as well as the potential overproduction of tin in response to rising tin prices in the medium term. Furthermore, the general trend of miniaturisation of electronic products could certainly lower demand for tin as it would require less of the metal, though this could be negated by growing demand in emerging economies.
đ§ș If you are considering adding tin to your existing portfolio or bundling it with a number of others, you may want to consider doing dollar-cost averaging (regular investments over time) to build your tin position so you can take advantage of any volatility in the market.
đ° If you are considering adding tin for speculation and profit, you may want to monitor the factors that affect tin prices mentioned above. You may also want to keep track of the annual tin publications provided by the USGS, as well as LMEâs tin stock reports, to identify supply and demand levels, along with other bits of information they provide. In addition to monitoring the factors mentioned above, you may also want to consider performing some technical analysis on tinâs price chart to help consolidate trends and patterns to help with your decision. That being said, its price can also swing unexpectedly and dramatically, so be prepared and have an exit plan in place.
As always, if you are unsure, check in with a professional financial advisor before making any moves.
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