Wednesday, October 7, 2009

The mystery investor who is turning the tin market on its head

From the Telegraph:
A single investor – thought to be a hedge fund – is sitting on thousands of tonnes of tin in warehouses across London. According to traders almost the entire stocks of tin on the London Metals Exchange (LME) was bought up by a single, mysterious investor, last week.

One fund has warrants for more than 90pc of all physical tin stocks because the market rules dictate that above this threshold, the buyer must lend out the commodity, if asked, at the cash price with no premium.

Industrial buyers are furious that they are paying up to $730 per tonne for immediate delivery more than it would cost them to buy three-month futures contracts, arguing this stranglehold on the market should not be allowed to happen.

Contango – where spot prices are lower than forward prices – is considered normal for tin because of the interest, warehouse costs and insurance incurred in carrying the metal. Backwardation – which is happening with tin today – is a sign of shortages to come.

Traders are also claiming that prices have only inflated so high – at other times plunging to extreme lows – because the dominant position has made the market illiquid and disorderly with distorted prices.

"It's a ridiculous situation to have when there is clearly not a shortage of tin and the LME is refusing to admit that anything's wrong," said one metals trader.

So why would a fund take the decision to stockpile a metal when there is an enormous surplus of tin around the world?

At the moment, tin for three-month delivery is trading at above $14,000 on the LSE, a 40pc rise in prices after a 35pc drop last year.

But the mysterious buyer is clearly convinced that the commodity's price has further to soar....MORE

According to

Abe Vigoda is alive

Page loaded Wednesday October 7 2009 12:23:30 PM PT

I bring this up because of one of our previous tin posts, "Buy Tin":

That was the cryptic message from a reformed metals trader this afternoon. No rationale, no investment thesis, just "buy tin".

I couldn't help thinking of the Barney Miller episode "Child Stealers".
Time traveler "Adam Boyer" comes back from 2057 and is hounded by Harris for stock tips:
[Harris, acting on a tip from a "twinkie" claiming to be a Sociology Professor from Columbia University who's traveled back in time from the year 2057 (played by the great character actor Richard Libertini), calls his broker to transfer his assets from gold bullion to the financial standard of the future--Zinc!!]:

", no blue chips, either...I was thinking about Zinc! (pause) Yeah, Zinc! What's it goin for these days? (writing the figure on a notepad)...Thirty seven and a half cents---a POUND?? (The "Professor" gives Harris an encouraging nod)...Yeah, well, I might be willin' to spring for a coupla TONS!"
Since the episode aired in January 1980 and zinc today is $1.075, zinc didn't do so hot (but much better than gold, which hit $850 that same month). Here's Kitco's zinc chart....

I might be willin' to spring for a coupla tons.