Buying Tin Call Options to Profit from a Rise in Tin Prices

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Tin Price

When the Bronze Age first began, it was an alloy that combined copper and arsenic. But by 2000 BC or so, arsenic was already largely replaced by tin. That was because it was discovered that handling arsenic was dangerous to our health as the fumes from refining it were toxic. Tin isn’t toxic, the alloying process is easily controlled, and the resulting alloy is stronger. Since tin is relatively rare, trade lines were established, so that the tin in Cornwall in Britain could reach as far as the lands in the Eastern Mediterranean. The metal was also used for other alloys of the time, such as pewter.

Then in 1795, a French chef invented the canning process to win an award from Napoleon Bonaparte. The French emperor wanted a more efficient way of preserving food for military use. A year later, a British merchant obtained a patent to used tinplated steel for food cans, and this proved popular because tin was corrosion-resistant. This can arrived in America in 1818, and it was used during the American Civil war. The tin can would be in use until the mid-20 th century when aluminum cans came into the picture.

Today, it is still used extensively in many products. The demand for the metal is high, though it’s quite rare with just 2 parts per million in the Earth’s crust. About 250,000 tons are mined each year, and although many countries have large reserves it is theorized that in 40 years there will no longer be any tin that can be mined.

Below is the historical Tin price per metric ton.

Year Price Price (Inflation Adjusted) Change
1980 $16,777.73 $51,716.76 0%
1981 $14,168.91 $39,596.71 -18%
1982 $12,829.79 $33,761.18 -10%
1983 $12,987.60 $33,116.72 1%
1984 $12,230.31 $29,900.03 -6%
1985 $11,539.04 $27,229.77 -6%
1986 $6,161.37 $14,268.47 -87%
1987 $6,689.83 $14,953.94 8%
1988 $7,051.63 $15,141.86 5%
1989 $8,534.43 $17,486.50 17%
1990 $6,085.38 $11,829.75 -40%
1991 $5,595.96 $10,439.86 -9%
1992 $6,104.09 $11,056.15 8%
1993 $5,167.55 $9,087.20 -18%
1994 $5,459.98 $9,358.14 5%
1995 $6,197.36 $10,332.65 12%
1996 $6,158.88 $9,969.41 -1%
1997 $5,640.48 $8,925.00 -9%
1998 $5,536.23 $8,622.09 -2%
1999 $5,391.40 $8,215.79 -3%
2000 $5,435.90 $8,011.22 1%
2001 $4,489.44 $6,436.15 -21%
2002 $4,061.00 $5,730.25 -11%
2003 $4,889.65 $6,744.39 17%
2004 $8,480.94 $11,390.38 42%
2005 $7,385.25 $9,592.66 -15%
2006 $8,754.90 $11,019.08 16%
2007 $14,495.44 $17,747.30 40%
2008 $18,466.64 $21,781.68 22%
2009 $13,602.69 $16,109.02 -36%
2020 $20,367.25 $23,740.12 33%
2020 $26,051.45 $29,424.07 22%
2020 $21,109.36 $23,351.79 -23%
2020 $22,281.58 $24,284.27 5%
2020 $21,898.87 $23,491.30 -2%
2020 $16,066.63 $17,217.73 -36%
2020 $17,933.76 $18,786.55 10%
2020 $21,204.35 $21,713.25 15%
2020 $21,825.74 $21,825.74 3%

Price History of Tin

Dating back to 1921, there had been a long history of informal agreements between the countries that produced the metal and the countries that bought it. The ITC (International Tin Council) was formed, and from 1956 to 1985 it was able to control the price of tin that was agreed upon. This approach ran counter to the free market system, and it was designed to ensure that consumer countries could access a reliable supply of the metal, while the producers made a decent profit.

The ITC bought the metal when the price was low, and then when the price climbed too steeply it sold from its stockpile to increase the supply and lower the price. But the stockpile it accumulated wasn’t enough to set up an artificial ceiling, and the price rose sharply due to the inflation of the 1970s.

Then the recession hit in 1981. The ITC had managed to prevent the price of the metal from crashing by buying the metal for its stockpile, but that required them to borrow money extensively to add to its financial resources. By 1985 the organization had reached its limit, and so a tin crisis arose. It was removed from trading in the London Metal Exchange for 3 years, the ITC dissolved, and the price dropped sharply to around $4 a pound from $8.46 a pound in 1980. This price remained constant until the end of the century.

But the 2000s were a different story, and it has bounced back following the 2008-09 global financial crisis. It reached almost $15 a pound in 2020, but as of March 7, 2020 its price is at $7.87 a pound.

Tin as Investment

It is theoretically possible to buy the metal in bars or bullion, but this is not practical. Its low price per pound means that any substantial investment will come with a very costly storage expense. It’s also not feasible to buy stocks in tin mining companies. These companies tend to mine many kinds of metal, and most of the tin comes from emerging markets.

Thus, your investment opportunities are somewhat limited. You can deal in futures contracts, and you can trade in the London Metal Exchange. You can also trade in futures contracts in the Indonesia Tin Exchange and the Kuala Lumpur Tin Market.

You can also buy shares in exchange-traded funds. Some of these funds deal in various metals that include tin. But a few are linked to an index of tin futures.

Purposed Used For

This metal has several noteworthy uses. Since 2006, the main use for the metal has been in the solder industry. It became the main component in solder after government legislation outlawed the use of lead in electronics. Since then, around 55% of the metal is used for this purpose.

It’s also widely used as plating for steel, iron, lead, and zinc. Tin-plated steel containers are still widely used, especially for food preservation.

It is also combined with other metals to create specialized alloys, and that’s a very familiar role for tin since it was combined with copper to make bronze ages ago. That’s still true today, and alloys that contain tin (such as brass and pewter) are used for decorative figurines, wires, superconducting magnets, brass instruments, and organ pipes.

It’s apparent that the use of tin won’t stop for the foreseeable future, and only the huge reserves are keeping the price low. But in 40 years, who knows?

Should You Trade Tin In 2020? A Beginner’s Guide To Tin

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Last Updated on September 11, 2020

Why is Tin Valuable?

Tin is an element that, when refined, is a soft, pliable, silvery-white metal. It resists corrosion and, therefore, is often used as a protective coating for other metals. Tin also forms useful alloys with many other common metals including copper.

Archaeological evidence shows that tin was first mined and processed in Turkey around 3,500 BC.

Ancient metalworkers discovered that combining tin with copper formed a strong alloy (bronze) that could be crafted into durable weapons and tools. This discovery ushered in the Bronze Age, which lasted for the next 2,000 years.

Bronze Swords via Dbachmann on Wikimedia

Other civilizations around the world soon began using tin in a variety of ways. Metalworkers on the peninsula where Thailand is now located were producing bronze from tin around 1,600 BC.

The metal was discovered in relics in Mexico and Peru that date prior to the Spanish conquest of the 1500s. In the Roman Empire, tin served as a plating material to help keep copper vessels bright.

The modern era also saw its share of important innovations in tin usage. In 1839, American inventor Isaac Babbitt created an alloy of tin, copper, and antimony that was adopted for use in bearings. The new alloy helped facilitate the development of high-speed machinery and transportation.

In 1952, the English glassmaking firm Pilkington invented a revolutionary way to produce perfectly flat sheet glass using molten tin as a key part of the production process.

Today mines worldwide extract more than 280,000 metric tons of tin annually. Manufacturers use the metal in applications ranging from soldering to plating to alloys. As a result, tin is a key industrial metal in global markets.

How is Tin Produced?

The supply of tin derives from two sources:

primary production (mining) and secondary production (recycling). Mining provides most of the supply, although the United States Geological Survey (USGS) estimates the quantity recovered from recycling in the United States represented 30% of total consumption.

Primary Production

The earth’s crust contains nine tin-bearing ores. However, only the opaque and translucent cassiterite ore contains enough of the element for viable commercial production of tin.

Tin mining techniques vary by location of the deposits. In Bolivia and England, where deposits reside deep beneath the surface, miners use tunnels to reach the ore. Deposits in these locations usually contain between 0.8% and 1.0% tin by weight.

Mining Tunnel via Шабанов on Wikimedia

In Indonesia, Malaysia and Thailand, gravel along streambeds contains tin ores. Dredges and pumps remove these ores, which may contain as little as 0.15% tin. Gravel deposits account for more than 80% of global tin production.

Once miners extract tin ores, they go through a series of chemical filtering steps to obtain increasingly greater concentrations of tin.

Filtering

Revolving screens and shakers dredge the gravel and separate the tin ores from sand and other debris.

If the deposits are located above the water level, then water jets break up the rocks and trap the mixture in artificial ponds. Pumps then send the mixture into wooden troughs. Wooden slats called riffles trap the tin ore and separate it from sand and debris.

Concentrating

The ores first pass through vibrating screens, which remove coarse foreign particles. Next, classifying tanks filled with water perform further filtering. Sometimes, mining facilities use flotation tanks containing chemicals for additional filtration.

Smelting

The concentrated tin is placed in furnaces with either coal or fuel oil. The materials are then heated to a temperature of about 2,550 degrees Fahrenheit.

At this point, carbon in the furnace reacts with carbon dioxide to produce carbon monoxide. The carbon monoxide then reacts with the cassiterite to form crude tin and carbon dioxide.

Sometimes blast furnace slags – residual products from heating tin – form in the furnace. These products get heated again in a second furnace to recover additional tin.

Refining

Crude tin from the smelting is placed in a low-temperature furnace. Tin has a much lower melting point than other metals. As a result, when refiners raise the temperature in the furnace, the tin melts, while other metals in the mixture remain in solid form.

Tin Refining Floor, Irvinebank Company’s Treatment Works, Irvinebank 1909 via Queensland Government Mining Journal on Wikimedia

Poling kettles collect the tin in a process known as liquidation. The molten tin is then boiled to remove additional impurities. At this stage in the process, the tin is 99.80% pure.

If applications require even higher purity, electrolytic refining plants can use electrical currents to remove the remaining impurities such as bismuth and lead.

Secondary Production

Recycling tin is an economically viable activity. In the United States, two de-tinning plants and 75 secondary, non-ferrous metal-processing plants processed more than 80% of the recycled tin in recent years.

Recycling Metal via Pixabay

China is the leading tin mining country in the world. It produces more than 30% of the annual supply of the metal.

Top 10 Tin Mining Countries

Rank Flag Country Thousands of Metric Tons
#1 China 100,000
#2 Indonesia 55,000
#3 Burma 33,000
#4 Brazil 26,000
#5 Bolivia 20,000
#6 Peru 18,000
#7 Australia 7,000
#8 Vietnam 5,400
#9 Congo (Kinshasa) 5,200
#10 Malaysia 4,000

These are the reserves of each country as reported by the USGS:

Which Countries have the Most Tin?

Rank Flag Country Metric Tons
#1 China 1,100,000
#2 Indonesia 800,000
#3 Brazil 700,000
#4 Bolivia 400,000
#5 Russia 350,000

Tin has two forms in which it occurs:

White Tin: A malleable silvery-white metal that occurs at room temperature.
Grey Tin: A powdery, brittle substance that occurs at low temperatures.

White tin has a number of industrial applications, while grey tin has no known uses.

4 Main Uses of Tin

Uses Description
Coating Metal

The resistance of tin to corroding makes it a popular choice to coat other metals. Tin cans, for example, are made of aluminum or steel and coated with tin. Alloys

Tin combines with other metals to form strong alloys. Soft solder, pewter, bronze and phosphor bronze are examples of common tin alloys. Niobium-tin alloys produce superconducting magnets. Window Glass

The Pilkington process uses a molten bath of tin to produce flat sheet glass. Tin Chloride

This tin salt is used as a reducing agent and as part of the process for dyeing calico and silk.

What Drives the Price of Tin?

The price of tin is driven mostly by these five factors:

  1. Soldering Demand
  2. Global Stocks
  3. Chinese Supply and Demand
  4. Government Policies
  5. Input Prices

Soldering Demand

Approximately 50% of the world supply of tin is used in solder, although this number has been declining in recent years.

Soldering via Pixabay

In the early- to mid-2000s, tin demand remained strong as manufacturers replaced lead with tin in soldering applications. However, beginning in 2020, falling demand for consumer electronics and appliances caused a decline in tin demand.

Trader should pay careful attention to demand for applications that require soldering for clues about future tin prices.

Global Stocks

The London Metals Exchange (LME) keeps track of global stock levels for tin and other industrial metals. Traders follow these inventory levels closely for clues about supply shortages or surpluses.

If inventory levels drop, the market may be facing a shortage of tin supply in the near future. This could lead to higher prices for the metal. Similarly, if stockpiling occurs and inventory levels expand, then the market might face an oversupply of the metal, which can lead to lower prices.

One interesting development with base metals such as tin is the increasing importance of inventories held at the Shanghai Futures Exchange (SFE). Traders should monitor the change in tin inventories at both exchanges for clues about tin supply and prices.

Chinese Supply and Demand

China is the world’s largest tin consumer and supplier, so activity in this country can affect tin prices.

In recent years, the Chinese economy has slowed from its torrid pace of growth over the previous 15 to 20 years. As a result, China’s appetite for a variety of base metals has waned. For tin prices to perform well, the Chinese economy will need to accelerate its growth rate.

Another factor impacting tin in China is the country’s increasing environmental awareness. Poor air quality in China has forced the government to take a harder look at the mining industry as a contributor to pollution.

Pollution in China via Pxhere

New environmental standards in China can impact the price of tin in two key ways:

  1. The regulations can reduce the supply of refined tin exported from the country. (This would support higher tin prices).
  2. It could reduce the demand for tin ore imports into China since these require pollution-producing processing. (This could lead to lower prices).

Government Policies

Government trade policies can impact tin prices.

Historically, Indonesia has been a leading exporter of tin. However, the country has also banned tin exports in recent years. The rationale for this policy was a desire by the government to support the domestic smelting industry. Ultimately, budget deficits in Indonesia led to a resumption of exports.

Actions by the Indonesian government and other leading tin producers can impact supplies and prices.

Input Prices

Tin occurs in cassiterite ore bodies, and breaking down these ore bodies to extract the metal expends energy. Producing tin requires ample supplies of coal, electricity and crude oil.

Mines and blast furnaces utilize energy to extract tin ores from the ground and process it into tin. These costs can have a big effect on primary production. Similarly, the costs of scrap metal can impact the price of secondary production.

Scrap Metal Pile via Pixabay

3 Reasons You Might Invest in Tin

Investors should consider buying tin for the following reasons:

  1. Bet on Surging Global Economy
  2. Inflation and Weak US Dollar Hedge
  3. Portfolio Diversification

Bet on Surging Global Economy

Expanding global demand for soldering, tin alloys, and tin-plated materials could contribute to a rise in tin prices.

For this scenario to unfold, China would have to resume its strong growth. The Chinese economy has experienced a slowdown in recent years, although there are signs this may be coming to an end. Essentially, investing in tin and other base metals is a bet on a resurging Chinese economy.

Inflation and Weak US Dollar Hedge

Investing in tin is a way to bet on a weak US dollar and higher inflation.

Tin is priced in US dollars, so the performance of the American economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.

US central bankers are likely to continue these policies to support consumer borrowing and spending. These conditions are likely to be very beneficial for commodity and base metal prices.

A weak dollar could stoke inflation concerns. There is a limited supply of tin, and producing it is an energy-intensive endeavor. The price of the commodity would likely benefit from fears of inflation.

Portfolio Diversification

Most traders have the vast majority of their assets in stocks and bonds. Commodities such as tin provide traders with a way to diversify and reduce overall portfolio risk.

Should I Invest in Tin?

Traders that want to invest in tin should consider purchasing the commodity as part of a basket of commodities that includes other base metals (i.e., copper, lead, nickel, and zinc), precious metals, agricultural commodities (i.e., dairy, meats, and grains) and energy.

Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.

There are three specific trends that could raise tin prices in the years ahead:

Chinese Demand

China is the top consumer of tin, and demand should grow if the Chinese economy rebounds.

Electronics Demand

Electronics have become an important mainstay of consumer spending. These products require tin for soldering components. Growth in this category should bode well for tin demand.

Through Hole Mounted Component via Wikimedia

Energy Costs

Higher energy costs make mining an increasingly challenging business. As fuel and electricity costs rise, more mining operations could close or consolidate. This should produce higher tin prices.

However, traders should also consider the risks of investing in tin:

  1. A global recession could weaken Chinese demand.
  2. Overproduction or increased stockpiling by China could create a supply overhang on the market and send prices lower.
  3. Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.

Expert Opinions on Tin

One leading tin analyst predicts modest gains for the metal in the near future. He believes stricter Chinese environmental regulations could reduce output and keep the metal in a supply deficit over the coming month. However, he believes the market has anticipated much of this news, so gains could be muted:

“Despite the shortfall, prices will increase marginally, as tin has been suffering from a chronic deficit, which has already been penciled in by the market.”

Ricard Torné, head of economic research, FocusEconomics

One tin mining CEO expects an even larger supply deficit to emerge and prices to react positively:

“We would expect a more modest rise in tin prices as the market remains in deficit.”

How Can I Invest in Tin?

Investors have several options for gaining exposure to tin prices:

Tin Trading and Investing Methods Compared

Method of Investing Complexity Rating (1 = easy, 5=hard) Storage Costs? Security Costs? Expiration Dates? Management Costs? Leverage? Regulated Exchange?
Tin Bullion 1 Y Y N N N N
Tin Futures 5 N N Y N Y Y
Tin Options 5 N N Y N Y Y
Tin ETFs 2 N N N Y N Y
Tin Shares 2 N/A N/A N/A N/A N/A N/A
Tin CFDs 3 N N N N Y Y

Tin bullion

Physical tin bullion such as ingots is the most direct way to invest in tin. However, investing in bullion requires a secure storage facility. Ultimately, the cost of this storage and the low value-to-weight ratio make holding physical tin an impractical proposition.

Tin Futures

The LME trades a contract on tin that is a minimum of 99.85% pure. Each contract represents 5 metric tons of tin and is quoted in dollars.

Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of the metal.

Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

Tin Options on Futures

The LME offers an American style options contract on tin futures.

Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of tin futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in tin futures to profit from their trades.

Tin ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do. Investors can purchase iPath Dow Jones-UBS Tin ETN (NYSEARCA: JJT), which is an ETF that invests in tin futures.

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Tin Price Outlook

Tin Price History Data (USD per metric ton, aop)

2020 2020 2020 2020 2020
Tin 16053.44 17960.96 20068.1 20204.02 18633.23

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Price forecasts and historical data for Energy, Metals and Agricultural Commodities.

Tin Historical Price Chart

Note: Tin prices in USD per metric ton (mt). Daily prices.

Source: Thomson Reuters.

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