Information you don’t need about Tin Market

Friedrich Hayek, January 27, 1981 (WikiCommons)

In his 1945 essay “The use of knowledge in society”, Friedrich Hayek wrote:

It is worth looking at a very simple and common example of the action of the price system for a moment to see what precisely it accomplishes. Suppose that somewhere in the world a new opportunity has arisen for the use of some raw material, say, tin, or that one of the sources of supply for tin has been eliminated. It does not matter for our purposes—and it is highly significant that it does not matter—which of these two causes has made tin more scarce. All tin users need to know is that some of the tin they used to consume is now used more profitably elsewhere, and they must therefore economize on tin. It is not necessary for the great majority of them to even know where the most urgent need has arisen, or for what other needs they must manage the provision. If only some of them know directly about the new demand and dedicate resources to it, and if the people who are aware of the new gap thus created in turn fill it from other sources, the effect will quickly spread throughout the economy. system and influences not only all the uses of tin but also those of its substitutes and the substitutes for these substitutes, the supply of all things made of tin and its substitutes, and so on; and all this without the vast majority of those who helped produce these substitutions knowing nothing about the original cause of these changes. The ensemble acts as a market, not because any one of its members controls the whole field, but because their limited individual fields of vision overlap enough that, through many intermediaries, the relevant information is communicated to all. The mere fact that there is a price for any product—or rather that local prices are connected in a certain way by the cost of transportation, etc.—produces the solution that (it is only conceptually possible) a only that it has all the information that is in fact dispersed among all the people involved in the process.

Hayek was highlighting the power of market prices to coordinate our behavior. The market price of tin consolidates vast amounts of information from around the world into one number that is useful in telling sellers how much to make and buyers how much to consume. For market prices to work as a coordinating mechanism, we don’t really need to know why they move. All we need to know is the market price, and it will guide our decisions, a remarkable and counterintuitive idea.

so when i saw this S&P Global articlemy first thought was, “Who cares?”

Of course, to make inferences about a market price, we need more information than just the price. As Hayek says, price changes could be due to changes in tin demand, tin supply, or both. In this case, low inventories mean extremely volatile tin prices. The article says:

Small increases or decreases in production can have a dramatic impact on prices for commodities like tin, where inventories are “extremely tight,” Peter Arden, founder of research firm Groundwork Pty. Ltd., told Commodity Insights.

“There has been absolutely no metal available. That’s why the price has gone up so much,” Arden said. “Tin prices had run [hot] in 2021, but this year they were also caught up in the Russian invasion which has definitely had an effect on all commodity markets.”

Russia was expected to supply about 1 percent of the world’s tin, so the invasion is not a direct cause of the price changes, the article says.

“Indirect impacts include rising oil and gas prices globally (but particularly in Europe) as well as some shipping delays,” Willoughby told S&P Global Commodity Insights in an email interview. “Other markets are being affected, which in turn is affecting tin.”

However, there is a correction:

A new wave of COVID-19 in China is expected to hurt tin demand, and global inflation could slow the broader economy, suggesting tin prices “will face correctional pressure in the near term,” he said. Daniel Xia, a market analyst at ITA in Beijing. he told Commodity Insights in an email interview.

At the same time, tin production in Indonesia and Malaysia has increased in recent months. Malaysian production has rebounded since the world’s third-largest refined tin producer, Malaysia Smelting Corp. Bhd., lifted its COVID-19-related force majeure on Dec. 20, 2021, Andrew Radonjic, managing director of the developer Australian tin Venture Minerals Ltd., told Commodity Insights.

There you have it: more information than you absolutely need about the tin market. From being “dispersed among all the people involved in the process” of the tin industry at a market price, plus an article and a blog post to explain it: the magic of the Internet.

sunday pine is a William F. Buckley Fellow in Political Journalism at the National Institute of Review.

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