[Hayvok]

> The spot price of battery-grade lithium carbonate, trading in Shanghai and serving as a benchmark

I'm not sure why the Shanghai price is being used as the global benchmark without any qualification in this article, because in 2022 China was paying 2x per KG more than the U.S.A. and Europe. Everybody saw a significant increase, but nobody quite like China, where it looks like a bubble.

Prices have come down globally in 2023, but the Chinese price is now much closer to the U.S. and European price.

Regional price index: https://businessanalytiq.com/procurementanalytics/index/lith...

[firebat45]

When you look at where the overwhelming majority of lithium batteries are produced, it makes sense to use China as the benchmark (and why it pays more than the US or Europe).

[bee_rider]

It isn’t obvious to me (although, I am dumb about this stuff) why China would pay more for lithium if they (presumably) use more… wouldn’t we expect economies of scale and all that to make it cheaper for them?

[addicted]

Economies of scale aren’t automatic. They only apply to a certain size after which any benefits plateau.

Simultaneously you have demand and supply pressures especially if demand is increasing and supply cannot keep up, pressures due to limited transportation and shipping capacity which was a huge issue over the past couple of years across the board (and probably a bigger driver of inflation than nearly anything other than energy prices), and other costs increasing such as energy prices.

[boringg]

1. You have transportation costs. 2. I believe their economy was in a shutdown somewhat so market was askew. 3. If they are the major buyer but lithium being sold to them is monopolistic market structure in its origins then supplier can set the price. 4. They buy lithium in long term contracts so spot price is probably a proxy for whats at the margins as opposed to what the big companies are paying. 5. Speculators.

[paulddraper]

6. If what the lithium consumers are doing well financially, they are capable of paying more.

[bee_rider]

Well, I don’t feel as stupid about this not being obvious to me anymore, given that I’ve got at least four competing theories as to why the price is what it is.

[seanmcdirmid]

China isn't an open market, there is resistance getting Lithium from outside of China into China. Trade needs to happen, some people don't want that trade to happen, Australia had some issues with China last year, Bolivia doesn't really have any ports, port capacity is an issue, speculators might also be bailing out of real estate and their money is now sloshing around in commodities.

[nativeit]

Only if speculators don’t ruin everyone’s fun betting from the sidelines in volumes that outpace the influence of legitimate trade.

[Symmetry]

If the quantities of Lithium need are going to keep going up its better that speculators big up the prices to high levels now than that manufacturers bid up the levels to crazy high later. High prices get people who don't need as much of it to start economizing and let producers expand production to levels they'll need.

People have, from time to time, experimented with banning speculation in commodities like onions in the US. And the wholesale prices of onions are much more volatile than other vegetables as a result. Sometimes commodity traders cause wild price swings and usually lose tons of money with stupid speculation, but more often they act to smooth things out.

[xkekjrktllss]

Are you implying that stocks are not legitimate trade? That's anti-freedom.

[mschuster91]

Trading in commodities futures has a point, but it has gotten absolutely ridiculous in scope. The market participants used to be farm collectives, mining companies on the one and large wholesalers and consumers on the other side as a way for both to hedge against price swings... but that's no longer the case. Hell even if you just look at the last 10 years, trading volume has exploded by ~3x (futures) / ~5x (options) [1] - but there is no economic fundamentals (e.g. production amount of farms or raw material mines) to support this, it's all financial mind-fuckery that skims off billions of "fractions of cents per transaction" and redirects them to a select few very rich people.

This kind of predatory leeching has to stop, once and for all.

[1] https://www.statista.com/statistics/377025/global-futures-an...

[Animats]

There's a lot to be said for this position. Here's an NBER study from 2014 on the financialization of commodity prices. There is substantially more volatility in commodity prices than in the underlying production and consumption. Sometimes, what's happening in markets is going in the opposite direction as the real world commodity.

Another related study.[2] Studies agree that the tail is wagging the dog, but there is no agreement on what to do about it.

[1] https://www.nber.org/reporter/2014number2/financialization-c...

[2] https://americanaffairsjournal.org/2019/11/commodity-financi...

[pixl97]

https://en.wikipedia.org/wiki/Onion_Futures_Act

In smaller markets stock trading can turn into a manipulation game completely unrelated to the underlying asset.

[sally_glance]

Thanks for the link, what a fun story! Was it unrelated to the asset though? The article says

> Authority stated that it was the perishable nature of onions which made them vulnerable to price swings.

I'm just an interested bystander in terms of futures trading and the article relates to some studies which seem to find that even in the very decade of that incident, onion price volatility was decreased. So is there any strong evidence supporting that any small futures market can be gamed?

[paulddraper]

> stocks are not legitimate trade?

Most commodity futures are not legitimate trade; i.e. most parties that will never actually possess the commodity.

They're speculation.

> That's anti-freedom.

No, that idea is not anti-freedom.

[comte7092]

The position you are espousing is not universal outside of dogmatically libertarian circles. Most people have much more nuanced views than simple “trade == freedom, therefore ++trade implies ++freedom” equations.

[KptMarchewa]

Scale isn't instant.

[cgb223]

Why was China paying so much more? Just to ensure they would have enough for their needs?

[Hayvok]

That's what I'm curious about — everybody went up significantly in 2022, but if China was paying double for imports, then why wasn't everybody else having to pay double as well?

China procures most of their lithium through trade, so they're tapping the same global markets as everybody else.

[pixl97]

Where is lithium made versus where is it used.

For example if there was not enough shipping routes to China from where it's made then that could be an issue. Or if their demand was up, and there wasn't enough unloading capacity for lithium (not sure how this is being shipped over there) then there can be price spikes.

[cgb223]

I’m not a shipping expert by any means but if any country in the world would have a shipping route to it, surely it would be China no?

They manufacture basically everything and export a ton

[lucubratory]

Australia is a large supplier of lithium, the world's largest actually. Due to trade restrictions and irregularities arising from disputes, trade between China and Australia wasn't operating normally in 2022. Trade has now mostly resumed and the first bulkers left Australian ports for Chinese ports early this year carrying lithium ore. I suspect the absence of the Australian market meant that Chile could set their prices, and it looks like they set their prices pretty high. Plus, Chile is a longer and thus more expensive trip for any ship, including a bulker.

The high lithium prices in China were the Chinese side of the trade restrictions causing economic pain.

[dogcomplex]

They dramatically increased demand lately for solar production, so they were probably the cause of and epicenter of the global shortage - paying the premium as a cost of doing business while lithium production caught up.