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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Investing in Monopolies: A Look at the Tin Market

You may or may not have been following the tin market lately.

But for anyone who has, it's been an exciting ride. Tin prices passed $23,700 per tonne this week. That's a gain of 40% so far in 2010. Making tin the best-performing major commodity this year.

The price has been surging lately, as heavy rains have disrupted output at mines across Indonesia. This week, the country's trade ministry said Indonesia's tin exports might drop 19% this year to 80,000 tonnes.

The news is moving the market. Because Indonesia is the "only game in town" when it comes to tin exports.

In a good year, Indonesia produces 90,000 to 100,000 tonnes of tin. Accounting for one-third of global output.

The only other major player in tin is China, which put out an estimated 115,000 tonnes in 2009. But China is far from a reliable exporter of minor metals, with a rising domestic appetite for such commodities and a history of imposing export restrictions.

Thus, tin users prefer to look elsewhere for supply. And Indonesia is largely the only option. Peru, the world's third-largest tin producer puts out only 38,000 tonnes. Other than that, there's not a lot of production to be found.

Which is why rains in Indonesia can shake the world price for this metal. When you are the market, what happens inside your borders matters.

Investing in such "monopolized" commodities is an interesting play. When production is geographically restricted, it raises the chances of unforeseen events creating supply shortages and driving up prices. Exactly what we're seeing in tin today.

Another commodity where this could happen is platinum.

Global platinum production is even more geographically skewed than tin. In 2009, 80% of the world's platinum came from South Africa. Russia accounts for a further 10%, meaning these two nations control almost the entirety of the platinum market.

Setbacks in South Africa would have a major effect on the platinum price. And this is a nation with a lot of potential setbacks on the horizon. Rising power prices, labor unrest, social unrest, nationalization of mines (and the fall in productivity that usually goes along with such repossessions), pushing-the-envelope mining depths, etc.

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You heard it here first. Don't be surprised over the next couple of years to hear about a platinum crisis. If South African production flags for any of the reasons above, there simply isn't a back-up plan.

One reason to start investigating good platinum exploration projects in other countries. There are a few of them.

By. Dave Forest of Notela Resources


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