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?
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.
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.
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.
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.
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.
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.
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.
> Last year, production increased to 30.2 billion barrels, but these futures markets alone swelled to 541.6 billion barrels, becoming eighteen times bigger than the global physical output.
So, to put it clear: on average, before reaching a refinery, each barrel of oil that ends up there changed hands eighteen times, with each step extracting wealth (in the form of buy/sell price spread) along the way - for zero gain for both the producers and the consumers of the oil. And yet, everyone seems happy with it.
> but there is no agreement on what to do about it.
If you ask me personally, the answer is easy: burn the entire thing down and restrict the rebuilt one to actually legitimate market participants (producers, wholesalers and consumers of commodities). The current system serves no real purpose other than to enrich a very few people at the expense of everyone else, which is also the reason why this won't ever happen - the financial incentives and thus the amount of money flowing into corruption and its legal friend lobbying is just too much.
The problem is, you won't get that kind of clear-cut answer from any academic studies or even most political parties outside of the far-left (like me) who criticize it on the very real effort this looting has on poor people and the far-right who tends to focus more on the conspiratorial part. It's in the end a question of political ideology and of how independent science, journalism and politics can actually be when faced with billions if not trillions of dollars of financial interests.
The trouble is, some of the alternatives are worse. Agricultural product buyers who control the path by which products are moved (grain elevators, stockyards, etc.) are in a stronger position than farmers. So they can negotiate prices below the "market" with farmers. There are farmers demanding that the US government require the big buyers (especially Cargill) to use publicly traded markets so they can't squeeze farmers so hard.
There's history here going back to at least 1870 or so.
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?
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.
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.