Ask a room of base metals analysts what they are bullish on, and you'll get a tin ear. In fact, at the recent Inside Commodities conference, that's exactly what happened.

For the most part, tin doesn't get a lot of attention. For the uninitiated, tin seems like something for woodsmen and cups. But lowly, nonglamorous tin is becoming increasingly important, overtaking lead as the metal of choice in modern electronics soldering, especially after EU regulations requiring lead-free solders was implemented in 2006. In 2006, tin accounted for 50% of solders; in 2007, that market share grew to 52%.

This demand creep, however, isn't the sole reason for the positive feelings toward tin.

"The reason people are bullish on tin is not a demand story; it's a supply story," said Catherine Virga, an analyst with CPM Group in New York and one of the participants on the Inside Commodities base metals panel.

And that supply story has been building for years. The top two producers of tin are China and Indonesia, which combined in 2007 to produce 70% of the world's mined tin, and actions in those two countries are starting to limit the long-term supply picture.

China First

China was responsible for 40% of all mined tin in 2007. But during 2008, China became a net importer of tin, whereas in the past, it was a net exporter. Virga explains it this way: "China experienced quite a bit of supply disruption this year, especially around the time of the Olympics."

The underlying reasons for the disruptions range from the usual suspects - power shortages and environmental concerns - to some idiosyncractic, Olympics-meets-tin specific ones. In other words, nobody wanted explosions going off while the entire world was on Olympics-heightened security alert, even if the explosions were intentional and controlled. As a result, mining was reduced.

Beyond the Olympics, however, China is reacting to the steady decline in tin prices. China's No. 1 producer of tin-Yunnan Tin-recently announced that it would reduce output of the metal by 30% in the fourth quarter of 2008 because of price concerns.

Indonesia

In the case of Indonesia, the supply slowdown hasn't been because of Michael Phelps. In 2006, Indonesia cracked down on tin producers for tax and environmental reasons. But Virga says this is changing: "The government has slowly been reissuing permits, but it's not completely back up to previous levels."

On top of that, the recent low prices have raised concern among producers, just like in China, so much so that the government recently announced that it's considering capping tin production for 2009.

Not waiting for government intervention, a group of small Indonesian tin smelters (known as PT Bangka Belitung Timah Sejahtera) agreed to halt production on October 22 to help stem the price decline, taking 3,000 metric tons a month out of the market. The consortium is looking for an $18,000-per-ton price in order to resume production. Quite a bump from the $15,000 prices we're currently seeing.

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