The Australian reported that tin traders have warned of a disorderly market in the metal with a single fund believed to have taken control of almost the entire stock of metal in warehouses owned by the London Metal Exchange.
The large holding in warrants to hold physical tin, amounting to more than 90% of existing stocks has helped to push up the short term price of tin to a big premium over 3 month futures despite a worldwide surplus in tin. The short term price surge means that industrial buyers of tin that want the metal today are forced to pay a cash premium of USD 730 per tonne over the price in 3 months time despite there being no shortage of stocks.
Some buyers have complained about price distortion and have called for an investigation of the dominant position.
The owner of the large position is unknown although names mentioned include Ebullio Capital Management, a hedge fund based in South end on Sea, Essex, as a possible holder of the warrants.
A senior metals analyst at a leading investment house said that "No one believes the market is tight. Inventories are getting higher every day."
The analyst said that tin is a relatively illiquid market compared with the main LME contracts, such as copper or aluminium where stocks have risen to 4.5 million tonnes. The price of tin is volatile and has suffered violent falls in the space of a few days.
One leading LME trader said that a decision to hold such a large position in warrants was odd given the incentive to make a profit selling metal today while buying back at the cheaper price three months forward. It's a strange situation."
The LME confirmed that there was a dominant position with control of more than 90 per cent of outstanding warrants. Under its rules, the LME steps in and forces a holder of more than 90% of warrants or cash position to lend to third parties to ensure an orderly market.
Mr Diarmuid O'Hegarty head of regulation at the LME said that the market was not disorderly and suggested the situation reflected uncertainty about the future. This is a 2 sided argument about whether there will be a shortage or a surplus in the future."
The 3 month tin price has risen by 40% since the beginning of the year to USD 14,000 per tonne. There are relatively few big sources of supply including mines in Peru and Bolivia as well as Indonesia and artisanal mining in the Democratic Republic of the Congo.
