by Stuart Burns on DECEMBER 1, 2016

The world is not short of tin yet tin prices are still rising. Not short in the total-percent-present-in-the-earth’s crust kind of way, anyway.

It is also relatively well distributed: the five largest producing countries are China 35%, Russia 12%, Australia 8%, Indonesia 7% and Brazil 6%, according to Platts. These mines are not in unstable or war-torn regimes. Some mines in places such as Myanmar and the Democratic Republic of the Congo are less savory, sure, but as a percentage of the whole they are not mission critical to global ore supply.

Yet, ore grades are falling and much of what is left will require a progressively higher price to be economically extractable. Falling London Metal Exchange and Shanghai Futures Exchange inventories are signalling that real or apparent demand remains strong and the rise by tin to become the second-most actively traded metal on the LME this year as the price has surged underlies strong investor interest.

After falling to the lowest level since 2009 to $13,085 a metric ton in January, tin is now trading at $21,400 per mt. Investor appetite has been insatiable, particularly in China, driven in part by a perception that demand is outstripping supply. BMI Research is forecasting the global tin market will see a supply shortfall deepen to 9,400 mt in 2020.

“This is mainly due to higher average tin consumption than production, as a result of depleting ore reserves,” the research group is quoted by the FT as saying.

But before we all get too carried away, the industry is getting twitchy about the price and that should ring alarm bells. Although the FT says “visible” stocks held in LME or SHFE warehouses are at their lowest level since at least 2000, there is a “high level of under-reported stocks in China.”

Yunnan Tin, suppliers of over one-quarter of global refined tin output, called for a “sustainable recovery” in the market, “rather than volatility caused by hot money or speculation in futures markets.”

While ITRI warned that “…money flows from the investment funds, could be the determining factor in metals price.”

A warning from both that supply-demand is not currently driving prices and therein lies an inherent risk.

That doesn’t mean to say the price hasn’t got further to go. There is no shortage of liquidity in the Chinese investment market and speculators this year have pushed not just tin but copper and other metals to annual highs. Tin’s fundamentals aren’t bad by any means but the FT reports that nearly 30% of Chinese smelter capacity sits idle today, a warning sign that high prices may not be matched by downstream demand.