A Buying Opportunity In Tin?

June 09, 2011

Tin prices may look glum now, but today’s bearish signals could hide more bullish times ahead.

 

It was a blink-and-you-could’ve-missed-it record scratch moment: In last Friday’s Commodity ETF Flows Report, we noted that the iPath Dow Jones-UBS Tin Total Return ETN (NYSE Arca: JJT) traded 15 times its monthly average volume—just in one week.

Over seven days, the base metal note traded well over 1,850,000 shares—a huge leap for an ETN that usually trades closer to 125,000 shares in a given month.

The jump went mostly unreported—not too surprising, given that tin isn’t as closely followed as the much larger copper market. But add in the fact that JJT was also one of the week’s bottom ETP performers, dropping 4.7 percent over the seven-day period, and a clearer picture emerges: Investors are dumping tin en masse.

And for good reason. Like the broader base metals market, tin’s price has sagged in recent months, dragged lower by renewed nervousness over the anemic economic recovery and European sovereign debt. Are more bearish times ahead for tin, or is an end in sight?

It’s All Downhill From There

Earlier this year, tin hit a series of record-high prices, pushed higher from decreased supply out of Indonesia, the world’s leading tin producer (followed by China and Peru).

But ever since the eurozone debt crisis reared its ugly head again in May, the base metal’s levels have steadily declined:

 

 

The fate of tin, used in solders and corrosion-resistant plated steel, hinges directly on the health of the manufacturing sector, which in turn depends on economic vitality both in the U.S. and abroad. But the markets have weathered a slew of disappointing news lately, everything from disappointing U.S. jobs reports to anemic housing starts, and the news has quelled risk appetite and revived volatility jitters.

In addition, Fed Chief Ben Bernanke’s comments earlier this week calling the U.S. economic recovery “frustratingly slow” and “uneven across sectors,” only frayed nerves further. Bernanke made no indication that the Fed would introduce new quantitative easing after the current round ends this month.

But there’s more to tin’s decline than just broad economic influences.

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