Tuesday, October 6, 2009

Tin "Trouble"

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

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...


Personally I have no problem with someone partially cornering a market; if they want to put on that type of risk(the riskiest position there is if a forced liquidation occurs, or otherwise) so be it. If they are distorting the "true" price there is a fundamental price inefficiency that allows small (and big) traders to trade against.

Does the semi-corner not have more power? Of course, but why shouldn't they? Someone buying $1 mil of some stock has more power to influence price than someone buying $100 of it. This is just the nature of a society where people exchange things. The thing that people forget is that to manipulate an asset price you have to commit serious capital at price X and eventually be able to liquidate at > X in the future. You can accumulate all you want, but to profit you must distribute it.

If industrial buyers don't like it, they should buy forward and stop bitching about backwardation, or better manage inventory/hedging.

Furthermore a semi-corner would drive the price up/down drastically during the accumulation process creating an incentive, in the case of tin, for more investment in production (with a significant lag) and more metal finding its way on the market.

People don't have a right to tin, they have a right to bid for it. If you don't like the asking price don't buy it. Simple.