In a time where equity markets are being driven by conflicting forces, investors are coming to the realisation that they can’t afford not to have some direct exposure to commodities in their porfolios. This is evident as selected commodities have seen favourable returns on investment.

The following graph details the London Metal Exchange (LME) price performance in 2009. Over the course of the year LME prices have shown mixed signals due to perceived decrease in demand in some metals as a resultant of a US economic slowdown and a supply shock in others. Commodity prices in 2008 are likely to temper the downward impact as demand in emerging economies such as China and India should remain strong enough to keep commodity prices up.

With the increased price, supply of metals and minerals are expected to grow in the coming financial year as mining projects begin to expand or start production to capture demand from the urbanisation and industrialisation of emerging economies.

As a result, the economic outlook forecasts that selected base metal prices are expected to fall amid an increase in supply in these markets and slower world growth over the long term. This will likely see weaker copper and zinc prices as mining capacities increase. Nickel and tin still face more serious supply constraints and, therefore, higher possibility of upward price movements. Over the longer term, all base metals prices should weaken from their current highs as output continues to catch up with demand, although higher long-term production costs (wages, fuel costs, and equipment costs) are likely to keep prices above historical averages.

This trading strategy can be used in any scenario with a falling market however as in any trading of financial instruments, timing is essential. With base metals expected to fall in the long term, the time is right to enter the market. Tin metal in particular is the least traded of all the base metals and often follows the trend of the more highly traded market metals such as copper.

Among all the base metals in is perceived to be the most lagged in terms of price movements. This is due to the lack of volume or trade conducted for the metal. Since there is often a lag in the trading price of Tin metal it provides sufficient buffer time to arrange for the implementation of the above strategy and therefore the most appropriate of all the base metals in which to trade. Having a core competency in the tin industry also helps to ensure a stable foundation for business growth in trading.

The demand / supply fundamentals also point to another good reason for trading in tin. With gains being driven by supply fears in Indonesia, growing demand from China, which has become a net importer this year, and investor demand for metals as an inflation hedge it will ensure that the expected fall in market price of tin will be gradual.

These falling prices also mean suppliers will be forced to sell their metals at a cheaper price as sellers will begin undercutting the market price. This will essentially become a strong negotiating point for the procurement of tin ores for the purposes of business strategy.

The business model is founded on the conjecture that the purchase ore minerals can be hedged against any movements in price to lock in profits. To do this, planning and timing is essential to ensure that shipments are delivered to the port of discharge, ready for smelting and delivered to an LME registered warehouse within the specified maturity date of the futures contract.