Tin Open Interest Rises to Record in London, Signals Price Gain

LONDON, July 7 -- Tin's open interest, or the number of futures contracts outstanding, rose to a record on the London Metal Exchange, indicating investors expect prices to extend this year's 33 percent gain.

    Open interest of tin futures, the least traded among the exchange's nonferrous metals, jumped 7.9 percent from the end of June to 36,281 contracts as of July 3. One unidentified firm has held between 30 percent and 39 percent of total LME deliverable stockpiles since late January, exchange data show.

    New open interest probably means new "longs," or positions for higher prices, have been added, Robin Bhar, an analyst at London-based Calyon, said today in an e-mail. "Either the existing longs have been tightening their grip on the market, or there are other players joining the fun and games."

    Tin's rising open interest coincided with an increase in the premiums for the September contract over longer-dated futures, signaling low availability of the contracts expiring in the nearer month. September contracts traded as much as $850 a metric ton above December on July 3, data showed.

    In a market with ample supply, nearby contracts are at a discount to future months, known as contango. The reverse is known as backwardation.

    A commodity hedge fund has controlled a large proportion of the LME tin stockpiles for most of the year and the positions concentrate around September, according to a report produced for researcher CRU by St. Albans, England-based ITRI Ltd.

    "Should world demand have recovered significantly by then, a big spike in prices is possible," the report said. "But between now and September, prices are more likely to fall than rise."

    Tin Squeeze

    LME-monitored stockpiles have more than doubled this year to 17,210 tons, or about 5.3 percent of world refined production in 2008. To hold 39 percent of deliverable stockpiles of 16,685 tons, or about 6,507 tons, would require $94.18 million at today's spot price.

    "There has been a squeeze; some people have held a large position, which could be for their physical commitments," Bhar said.

    Demand will contract about 11 percent this year to 294,000 tons, according to the report for London-based CRU.

    Tin for immediate delivery fell 1.4 percent to $14,273 a ton as of 2:30 p.m. in London.

    (Source: Bloomberg)