FUND VIEW-High tin prices needed to address market imbalance

* Supply/demand imbalance resolved through prices

* 2011 to see a tin market deficit

A further rise in tin prices, after they have already hit records, is the only way to sort out the imbalance between demand and supply, U.S.-based fund manager Armored Wolf said.

Benchmark tin on the London Metal Exchange hit a record at $30,920 a tonne on Thursday. That is a gain of about 15 percent so far this year for the metal used in electronics, after a surge of 58 percent last year.

A crackdown on illegal mining in top exporter Indonesia since 2006, tighter export regulations in the country and output disruptions have pushed tin prices higher in recent years.

"The story in tin appears to be one where a tight supply/demand balance will be resolved through the price mechanism, and more likely with demand destruction than supply additions, said Matt Millar, a director at Armored Wolf.

"The time-line for a ramp-up in tin mining ... is long enough that it is difficult to imagine a robust supply response in 2011 ... We will probably be stuck with a deficit again in 2011," he said this week.

A Reuters survey published late January showed analysts expecting a deficit of 15,000 tonnes in the tin market this year.

That is a small percentage of global consumption, estimated at around 365,000 tonnes this year, but analysts say it is enough to drive prices higher.

Millar said fundamentals justify current tin price levels. "Even assuming moderately higher Indonesian production, there is very little on the current horizon that will cut demand besides yet higher prices. If not, why have prices risen so high?"

Indonesia is the world's second-largest producer of tin after China. Its refined tin exports fell 9.2 percent in December 2010 from the same month in 2009, while full-year 2010 exports fell nearly 7 percent as an unusually long rainy season curbed mining.

A senior official told Reuters last week Indonesia would restrict annual output to a 100,000 tonnes.

Millar disagreed with the idea that investors were behind price gains.

"The idea that investors drive prices higher is generally hogwash," he said.

"Investors can take delivery in the case of metals and hoard them -- hold them off the market. But that does not appear to be a major force in the market." Source: Reuters