The hottest investment in metals this year is not gold or silver — it's tin

Tin continues to be the unexpected star performer of industrial metals this year.

While the broader metals recovery rally shows signs of flagging, tin keeps punching out fresh all-time highs on both the London and Shanghai markets.

Three-month tin contracts last week touched $35,955 per tonne on the London Metal Exchange, eclipsing the previous record of $33,600 dating from 2011.

Currently trading around $35,400 per tonne, tin is up 68% since the start of the year. Aluminum is trailing a distant second with year-to-date gains of 27%.

It feels as if the world has run out of a metal that's critical for electronics manufacturers everywhere.

Tin is now in demand destruction territory, with the onus on the relatively small number of major producers to generate a supply response.

Physical tin users in the United States, which finds itself at the wrong end of a freight-disrupted supply chain, are paying $4,000 per tonne on top of the LME price, if they can find anyone with anything to sell, which is a big if.

Tin inventories registered with the Shanghai Futures Exchange (ShFE), meanwhile, have slumped to their lowest levels since late 2016, when the tin contract was still in its infancy.

China exported 8,454 tonnes of refined tin in the first half of the year, up from 2,135 tonnes in the first six months of 2020. The country has swung from net importer last year to net exporter to the tune of 5,800 tonnes this year.

That appears to have removed any slack in China's domestic market just at the time the country's largest producer, Yunnan Tin, took down one of its smelters for 45 days of maintenance and others in the same province reduced output due to power constraints.

The rest of the world is also looking for increased supply from Indonesia, the world's largest exporter, and Malaysia.

But Indonesian exports this year are flat this year. And Malaysian producer MSC has been hit by a combination of equipment problems and COVID-19 controls.

Until they do, it's hard to see how the tin supply chain is going to normalize.