My gut tells me something is brewing. :-)
An anonymous investor has stoked the fury of tin investors by buying up vast amounts of the metal on the London Metals Exchange.
The unknown fund has warrants to hold physical tin which amount to more than 90% of existing stocks. This has sent the short-term price of tin sky high despite there being a worldwide surplus of the metal.
The mysterious move to stockpile thousands of tonnes of the metal raises concerns that the dynamics of the tin market will slide in favour of sellers.
As news of the sly tactic rippled through the 'Commodities Week' conference in London, one investor, who did not wish to be named, said the move was clearly a ploy to push the price of the metal up and alter the supply and demand dynamics, in a market that already lacks firm regulation.
The source said traders are likely to be nervous for the time-being and hoping for a speedy return to normal.
However, under LME rules, investors who hold more than 90% of warrants or a cash position must lend to third parties to maintain order in the market.
Growing demand for the metal, particularly from Asian economies which will undoubtedly shift the balance in favour of the producers, is a further concern weighing on the minds of traders.
The price of tin normally works under a contango system but is currently experiencing backwardation, with spot prices now far more expensive than three-month futures contracts - much to the dismay of industrial buyers.
The three-month tin price has risen by 40% since the beginning of the year and currently stands at $14,000 per tonne. However, those buying into the metal at the end of last week are paying a cash premium of $730 a tonne on this three-month price.
Michael Starke of Edison Investment Research describes the mystery buyer as an interesting turn of events and says a spike in prices is unlikely to be sustained: "Any large purchases will certainly result in short-term price increases. However, unless the tin is actually consumed, this can't go on forever. Ultimately, the market will return to equilibrium. It's just a question of when."
General sentiment amongst attendees of Commodities Week called for greater regulation in the tin market to avoid volatile prices. One warned that the prices are distorted from reality, as a result of a single entity possessing the majority of stocks and cash contracts.
Bob Greer, executive vice president of PIMCO, agreed that the commodities market requires position limits in order to prevent manipulation of the markets, but said the challenge lies in introducing different limits for the different type of commodity participant.
Until the London Metals Exchange admits there is a flaw with position limits, it looks as if traders will suffer the same gripe.