September 3rd, 2021
Outlook for Tin
Dear Retail Investor,
If you follow metals and mining on Twitter, you may have stumbled upon the hashtag #tinbaron, and asked yourself what is the big deal about a metal from antiquity?
This is not the Bronze Age nor is there any actual tin in modern-day canning – cans are mostly made out of steel or aluminum. Yet these self-proclaimed tin barons and this writer have been eying the tin price for the past year, watching it surge over 100% – from $17,000 per ton to US$36,000 per ton.
There are two fundamental factors for this huge price increase: electronics and tin supply.
Tin is a critical metal needed in electronics, specifically semi-conductors, as tin is needed for the solder that holds circuit boards together.
According to the International Tin Association (ITA), solder made up 49% of tin production in 2019. As noted by the ITA, the pandemic has caused restructuring in the electronics supply chain as more people work from home. As the world becomes more computerized and we shift to a greener way of living, computer chip manufacturing will continue to boom. To meet this rising demand we will need larger supplies of tin, as it is literally the glue for the transition to a greener world.
KPMG Advisory (KPMG) notes that semi-conductor revenue in 2020 was up 6.5% year over year, a strong number considering the pandemic. Going forward, KPMG remains optimistic for future semiconductor growth because of drivers like 5g, IoT and electric vehicles, which require a vast array of chip components.
Currently, the semiconductor space is experiencing supply constraints, as there is not enough productive capacity to fulfill chip orders, resulting in order backlogs. For instance, many automotive companies in North America and Europe have had to cut back car manufacturing which has affected profits and sales, simply because of scare supply of computer chips for theirs models. Elon Musk has even commented on the chip shortage, saying it was resulting in ‘insane difficulties’ with Tesla’s supply chain.
With the semi-conductor industry backdrop summarized, let us look at the supply and demand picture for tin.
Demand is straightforward. A demand for more computer chips is ultimately going to require more glue (solder) and so more tin will be needed to make solder. Currently, there are no safe substitutes for tin since the only real substitute is lead. Many governments and industries are pushing for lead-free products because lead is hazardous to human health. The demand for tin will continue to be strong as long as long as the demand for semi-conductors remains robust. However, semiconductors are a cyclical industry, and a recession could easily have an impact on tin demand.
The most important factor to look at is the supply picture, and this what tin barons are looking at and where they see opportunity.
First, let us start with stockpiles.
They are all at all-time lows. The ITA states that China, the United States and Korea, through their respective stockpiling agencies, are the only three countries with strategic reserves that are active in the tin market. They can buy and sell tin to affect the price of the commodity. The ITA believes that China currently holds no stockpiles. America used to hold around 300,000 tons of tin in 1962 and now holds 4,000 tons today and has no domestic production. Korea has begun purchasing more of the metal to increase its stockpiles because of production and transport issues out of South East Asia. Reuters reported on August 18, 2021 that “Physical supply chains remain super stressed and visible stocks are at record lows,” highlighting that a major supply issue is present in the tin market.
To add to the supply issues, production issues are a problem for tin too.
Much of the world’s tin production occurs in China, Indonesia and Myanmar, which are the three largest producers of mined tin. China is self-sufficient in tin, and as mentioned earlier, holds no stockpiles, which means that they are using all of their tin from mine production. Indonesia, the second largest tin producer, is likely to respond to rising demand with increased output, but faces environmental pressures from expanding tin production capacity, including offshore mining for tin. Myanmar (formerly Burma) is a complete mess with Covid-19 plaguing the country and a recent coup by the Burmese military.
Other tin producing countries such as Bolivia, Peru, Brazil and Congo are not exactly stable countries either, as all of them are facing some form of political instability. Both Canada and the United States have zero tin mines in production, so tin supply will likely remain unstable due to most of the current projects being in risky jurisdictions.
If low stockpiles and current production issues were not enough, a lack of viable future projects will also dampen growth in tin production. There are almost no new tin projects coming online currently, and ore grades in existing deposits are declining and or not high enough to put into production.
Alphamin Resources Inc. (TSX-V: AFM), one of the few and perhaps only pure-play tin producers, suggests that a price of US$30,000 per ton is required to bring additional supply to the market in their most recent corporate presentation. The ITA expects a shortage of tin mining capacity to develop over the next 5 years due to low investment and the fact that many tin mines are currently past peak production. They also argue that higher tin prices are necessary to spur investment in new projects.
To conclude, tin is critical for the future of technology.
The world will require more tin for computer chips in everything electronic. Demand for tin should remain healthy going forward as the world goes green, but supply is precarious because of lack of new projects, low stockpiles, and geopolitical circumstances.
This writer suggests that if you want to play short-term price fluctuations in tin, you could use the iPath Series B Bloomberg Tin Subindex Total Return ETN (Symbol: JJT). To play long-term I would suggest Alphamin (TSX-V: AFM), the only pure-play tin stock in North America. Alphamin produced 2,412 tons of tin in the second quarter of 2021 and is looking to expand its productive capacity with an exploration project south of the current mine. However, the downside is that the company operates in the Congo, a country plagued by violence and political instability. If you like exploration-stage mining stocks and have an interest in Roman history, you could also look at Cornish Metals Inc. (TSX-V: CSUN) as they are exploring for tin in Cornwall, a mining district in Wales since the Bronze Age.
Dear Retail contributor
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