Working from our unified view of price behaviour (as set out above), MPA developed a model of the cash and 3M prices of tin, with three drivers:
– Variation in the rate of demand growth is the initiator of the price cycle, but because monthly metals consumption figures tend to be contentious, MPA has used global IP growth as a proxy.
– The second driver is stocks. MPA is using LME stocks, because of the close causal link to contango and backwardation on the LME itself. Were MPA
– For the third driver, dollar strength or weakness, one could use the US$ major currencies index but in this instance MPA opted for the €/US$ rate, since that also has a forward curve and many potential customers prefer the latter for forecasting, rather than using forecast exchange rates.
Correlations of price drivers to cash and three months prices respectively are:
For year-on-year IP growth over 2012 to June 2019, 0.73 for the cash price, 0.73 for 3M price.
– For LME stocks just over 2015 through June 2019, -0.62 for the cash price and -0.61 for 3M.
– For the €/US$ exchange rate over 2012 through June 2019, 0.71 for cash and 0.72 for 3M.
Correlation of the actual and modelled cash prices are very good, at 0.87 over 2012 – June 2019 and for 3M prices the correlation is also 0.87. A separate model of the cash to three months spread has a correlation of 0.77 with the actual spread.
MPA’s interactive Tin price model run monthly to end 2023, so that clients can use them for their own forecasting and scenario analysis.