Tin Faces Historic Squeeze as Electronics Boom Erodes Stockpiles

(Bloomberg) -- The London tin market is facing the biggest supply squeeze in at least three decades as dwindling inventories, robust industrial demand and rising investor interest boost spot prices.

Official London Metal Exchange cash prices on Monday settled at the biggest premium to three-month futures since at least 1990. The spread -- which was at a discount as recently as early December -- has flared out dramatically in recent weeks, in a condition known as backwardation that’s a hallmark feature of a supply squeeze.

Tin prices have climbed to a six-year high as a global scramble for high-end computer chips boosts demand for the soldering metal, while a military coup in key producer Myanmar has also stoked fears about possible supply disruptions. With LME stockpiles nearing their lowest in more than 30 years, fundamentals appear to be moving firmly against spot buyers.

Tin is often overlooked by non-specialist investors, partly because it’s the least liquid main LME metal. Still, analysts say investors are growing more interested as the rally gathers steam.

“The fund community has certainly started looking at it in much more depth,” Geordie Wilkes, head of research at Sucden Financial, said by phone from London. “Exports and production of semiconductors suggest solder demand had a very strong year, and it looks like that could continue, but unfortunately the supply side is lagging.”

Tin has gained 15% so far this year, the best performance on the LME. Prices rose 1% to $23,340 a ton by 12:44 p.m. in London, bucking declines among other metals. Official cash prices ended Monday $1,341 above three-month futures.

Copper lost 0.8% and aluminum declined 0.4% on Tuesday.

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