When I wrote my first industry report on tin, in late 2011, we had an unpredictable global recession to deal with, a supposed slowing in demand for all commodities, and a general lack of interest in all things that come out of the ground.
Of course, the reason that tin can make money for investors has little to do with being a simple commodity, and much more to do with the boom in consumer electronics that comes from the surge in wealth in developing economies such as those in China and India. In 2006, the European Union implemented the Restriction of Hazardous Substances Directive, or RoHS. RoHS recognized that many uses of metals in modern society were dissipative, that is that the metal used in these applications couldn’t be effectively recovered or recycled, like the lead used in solder previous to 2006. Electronic solder used to be a blend of about 63% tin and 37% lead. With that solder being lost every time a cell phone ended up in landfill, the lead in that phone would leak into the environment. RoHS required the electronics industry to come up with an alternative to lead-based solders.
And the electronics industry managed to find something that was almost as good as lead-based solder. They raised the tin content to about 96%, added some silver and a little bit of copper, and now use modern lead-free electronic solder. While being more expensive and having a few other technical problems, the biggest issue from my perspective is that the use of tin in solder has boomed.
In 2012, according to ITRI, the percentage of all of global tin production used in electronic solder alone was well over 50%. The average cell phone today uses about 0.7 grams of solder, the average tablet about 3 grams (both according to ITRI and Henkel AG). The growth in shipments of smartphones (which use more solder than average) and the strong continuing shipment growth in tablets is driving tin consumption higher and higher.
Subscribe here to receive free daily InvestorIntel updates
And while tin recycling has been growing, bear in mind that the use of solder in cellphones and tablets remains dissipative. That is, the small amount of solder in a piece of electronics doesn’t want to come out easily; when the solder was used to join components to circuit boards during manufacturing, the bare minimum of solder was used, just enough to wet the connection between the two parts and ensure a good electrical circuit. This bare minimum of metal would have to be dissolved to extract it, simple melting and the flowing of liquid metal won’t get the job done. That means that this becomes a very expensive and environmentally messy job. Recycling, it would seem, is likely reaching its present-day limit. Now, if tin prices were to climb, then that limit might change, but it seems we have to depend on mining to produce more tin.
Of course, we’ve been mining tin since the Bronze Age, so the easy tin is largely gone. The major tin mines in Indonesia and China have been suffering from diminishing production for some time. We are left with using modern mining and processing techniques to produce enough tin to meet increasing demand from poorer and poorer cassiterite ores. The result has been increasing costs, and only very slowly growing production levels. And when this is coupled to increasing demand, well, the result is fairly predictable and fairly obvious. Tin prices have necessarily risen.
This InfoMine.com graph goes back to well before the 2003 proposal of RoHS. Prices really began to take off after the proposal, and implementation, of RoHS. And there is no reason to suggest they wouldn’t. After all, a modern smartphone like the Samsung Galaxy S5 costs well over $500. Let’s say that the Galaxy S5 uses a tablet-like three grams of solder, just to make cost increases on solder matter more. If current tin prices doubled, from the roughly $22/kg to $44/kg, the cost of that 3 grams of solder, containing 2.88 grams of tin metal, just went up by at least a whopping $0.06. Now, over a billion modern phones made, say, that’s a very meaningful cost increase of $64 million. But at $0.06 a phone, you figure this can be passed along to the consumer, somehow. In other words, there is no reason to believe that as solder demand grows, the price of tin won’t continue to move up.
Which means, if you have a long-term view on investment, find a few tin companies with what look like high costs today, coupled to deposits that can produce for a long time to come. Buy some shares. Sit back and wait. Unlike gold, which doesn’t really have a use other than being shiny, and other exceedingly common industrial materials like coal and iron ore, boring old tin probably has one of the best money-making stories to tell, simply because we aren’t going to stop buying electronics, and we aren’t going to stop using more and more tin.