February 5, 2023


Everything You Value

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 contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

Hayek was making a point about the power of market prices to coordinate our behavior. The market price of tin consolidates vast sums of information from all around the world into one number that’s useful for telling sellers how much to make and buyers how much to consume. For market prices to function as a coordination 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 insight.

So when I saw this article from S&P Global, my 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 result from changes in demand for tin, supply of tin, or both. In this case, low inventories mean extremely volatile tin prices. The article says:

Small production increases or decreases can cause a dramatic price impact in commodities like tin, where inventories are “extremely thin,” 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 been driven up as much as it has,” Arden said. “Tin prices had run [hot] in 2021, but this year they also got caught up in the Russian invasion which has definitely had an effect in 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 increased 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 impacted, which are in turn impacting tin.”

A correction is coming, though:

A new wave of COVID-19 in China is expected to hurt demand for tin, and global inflation could slow the overall economy, suggesting tin prices “will face correction pressure in the short term,” the ITA’s Beijing-based market analyst, Daniel Xia, told Commodity Insights in an email interview.

At the same time, tin production in Indonesia and Malaysia rose in recent months. Malaysian production has recovered 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 Australian tin developer Venture Minerals Ltd., told Commodity Insights.

So 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 to one market price, plus one article and blog post to explain it — the magic of the Internet.

Dominic Pino is a William F. Buckley Fellow in Political Journalism at National Review Institute.