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The more I read about prices of different commodities the more I realise the biggest movement in prices is not because of demand and supply but rather because o

• chii 4y ago
  > the biggest movement in prices is not because of demand and supply but rather because of speculation and gambling the movement reflects the expected future supply and demand at the time. The speculation is something that financial engineers use to offload the risks of such commodities from one party to another (such as from producers to consumers of said commodities).
  • xbmcuser 4y ago
    With the way derivatives are used these days to speculate/gamble they do not help rather result in the boom bust cycles we see in more and more industries these days.
    • sigstoat 4y ago
      and when exactly do you think that changed? if “these days” are in some sense bad, when were the good ones?
• bullen 4y ago
  Markets in a high energy cost environement make their margin more on volatility and speculation. You will also see margins themselves widen until the system falls in on itself. We dont have a financial margin tracker. Also increasing interest rates in a highly indebted economy increases inflation; short term by widening of margins and long term by offputting energy extraction. Lithium will explode soonish. Margins amplify volatility.
• 226_ebro_treaty 4y ago
  Wait until you learn about OPEC and oil prices :-)
  • KingOfCoders 4y ago
    Because they will change their mind? "demand and supply" OPEC is a cartel constraining supply to increase prices, it's not a free market but an example of "demand and supply" in it's most brutal form. OPEC prices are not about "gambling".
    • jimbob45 4y ago
      OPEC has gambled several times in the last decade on future oil prices (and not always won).
      • KingOfCoders 4y ago
        In which way has OPEC gambled on future oil prices that moved prices? To my limited understanding this would involve buying oil futures.
        • deleted 4y ago
          [deleted]
        • jpgvm 4y ago
          You don't need to use derivatives to gamble, they control the supply but that control is a lagging control. Any decision they make is essentially a bet about where the oil market is going to move in several months. They are usually big enough that any move they make is going to set the tone but that isn't always the case. They need to make continual bets on the health of transports, changes in energy mix etc in order to move or keep the price in a favorable band for them. Misstep and the price of oil falls, cutting into their profits or push it too high and face demand destruction and shale extraction coming online because it's profitable at those higher prices, increasing competition and stifling volumes simultaneously.
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• mmiliauskas 4y ago
  I personally have an impression, that commodity prices are a function of shocks. Gas prices in Europe, uranium prices in mid 2000s, lithium due to sudden EV demand, etc. World then adjusts, and prices "collapse" or rather stabilize. Basically, don't buy commodities when the price is high.
  • taneq 4y ago
    That always bugs me when these things are reported. Something goes up 30% in a year due to speculation and/or supply chain shocks, and then drops by 5% and it's "prices crash!" No it's still up ~25% year on year.
    • mmiliauskas 4y ago
      If media made well adjusted statements, it wouldn't be the media then wouldn't it :D
    • lotsofpulp 4y ago
      Which is why one should stick to obtaining their data from the source and ignore clickbait articles.
    • ipaddr 4y ago
      You are looking at different horizons. It might be up year over year but month over month if it trends down that information is more accurate as to where the future price will grow.
    • j16sdiz 4y ago
      For lithium, it was ~300% up in a year and back to original price in a few months.
    • deleted 4y ago
      [deleted]
• bawolff 4y ago
  Speculation & gambaling is just second order supply & demand.
  • yunohn 4y ago
    If you have massive buy/sell orders between finance bro speculators - how does that equate to real supply/demand for the underlying commodity?
    • jpgvm 4y ago
      There is a finite supply of the underlying, each sold future equates to agreed upon future deliveries. So in reality the number of contracts sold (not traded) does equate 1:1 with demand for the underlying. When that doesn't hold true you will end up with Failure To Deliver (FTD) which causes Very Bad Things™. Generally speaking though commodities markets aren't rigged in the way that people complain about in some other markets but they are subject to pretty violent volatility in the face of uncertainty. This is largely due to pretty fixed supply with highly variable demand. i.e I can't just shut off all the oil wells right now and return ships currently on-route to energy exchanges and even if I could I wouldn't have the storage. Storage is also an interesting one because storage costs money and was pretty much why oil contracts went negative for a short period.
      • RandomLensman 4y ago
        Most future positions are closed out or rolled before delivery - so open interest can easily exceed demand for the underlying.
      • yunohn 4y ago
        All of what you say could be true - I just find it hard to believe given IRL finance bros are constantly trading and profiting off of futures/commodities trading without a single worry of the underlying commodity.
        • hhmc 4y ago
• nprateem 4y ago
  > speculation and gambling Of course. The net present value of a stock or asset can only be calculated based on its expected future price and earnings. Since there's no way to know this with 100% certainty, stock prices are inherently speculative. Even value investors must struggle to accurately value a company's intangible assets.
  • danaris 4y ago
    But there's a material difference between "attempting, in good faith, to determine what the demand for a commodity will be in the future, and buying based on that" and "attempting to determine what the price of a commodity on the futures market will be and buying based on that". When people say that a commodity's price is being driven by speculation and gambling, they mean that it has shifted from the former to the latter. This means that the price is disconnected from the actual, physical use of the commodity, and is instead being driven by the inconstant passions of the commodities market itself.
    • lotsofpulp 4y ago
      >But there's a material difference between "attempting, in good faith, to determine what the demand for a commodity will be in the future, and buying based on that" and "attempting to determine what the price of a commodity on the futures market will be and buying based on that". These are indistinguishable. Unless you want to restrict markets to being only between suppliers and consumers, there will always be middlemen attempting to predict the price, and since they need to eat, they will be attempting to profit from changes in price. Which is fine because suppliers and consumers are many times willing to let others handle the risks of price changes (volatility), hence the market for futures.
      • GolfPopper 4y ago
        Of course there's a difference. It's based on information asymmetry, i.e. the 'greater fool' theory. When the information asymmetry is deliberately created, that's being done in bad faith, and is the sort of thing we call fraud when done on an individual level. It often feels like a great deal of our corporate and financial machinery are designed around diffusing actions that would be criminal, or reprehensible if done person to person, in order to allow them to be done at scale without consequence.
• bboygravity 4y ago
  It's interesting to see that people still believe there is some type of fair price discovery when things like dark pools, market maker exemptions, naked shorting, tokenized securities, trillions in derrivative bets (hello 2008), spoofing (JP Morgan getting fined 1 billion after making 10 billion in profit in gold price spoofing) and so on and so forth exist. Speculation and gambling about what future prices will be are not the big issues here, the markets themselves are completely broken (by design).
  • RandomLensman 4y ago
    What is the issue with a dark pool, for example? They are generally not designed for price discovery anyway.
    • quote 4y ago
      But wouldn’t it be better if the volume at least is shown on open exchanges?
      • JumpCrisscross 4y ago
        > wouldn’t it be better if the volume at least is shown on open exchanges? Empirically, no. Large blocks of stock don’t have a liquid market. Forcing them into the open means chopping it into tiny pieces while using derivatives to hedge, for the sophisticated, and getting hosed, for the unsophisticated.
  • Rufbdbskrufb473 4y ago
    You just listed a bunch scary sounding financial buzz words, but I doubt that a thorough analysis of them would support your conclusion. In fact, many have the opposite effect and result in more efficient price discovery. Take naked shorting for example. Without shorting, it would be far more difficult for an equity research firm to be incentivized to look into fraudulent stocks, as was widespread with Chinese companies a few years ago. Without their efforts, stock prices would have remained inflated for longer.
• z3t4 4y ago
  Monopoly and cartels has the most impact on prices. and the market can not work if there are few partisipants. also gatekeepers, those that stand in between producers and consumers can screw up the market if they have a large potion of the market.
• blablabla123 4y ago
  Speculating/gambling is a huge factor in anything that can be traded. But commodities also rely on physical deliveries which have influenced prices directly on various occasions. Of course for commodities also the selling side has direct influence on prices. That can go so far that for oil deliveries the tab is opened/closed on convenient times. So understanding prices is significantly more difficult than e.g. for stocks. Also speaking about the news part, a lot of data on commodities isn't freely available so you need to buy it. Trading itself on those is highly restricted - and speculative - anyway. > Where as car sales might be stagnating but electric car sales are taking a larger portion of total car sales ie electric car sales/lithium use is still increasing. I'm quite surprised the article doesn't mention sodium batteries. Li-Ion batteries are notorious for thermal runaways, so CATL and Tesla already shifted to LiFePO batteries quite some time ago. I think everybody would be more than happy to ditch Lithium based batteries altogether.
• nurettin 4y ago
  Price increase is governed by how much a buyer is willing to pay and how long a seller is willing to hold. That is supply and demand. Their reason to supply or demand is 100% due to speculation or gambling or whatever you want to call it. There is no intrinsic value for anything. Supply and demand is not a magic spell that saves people from guessing what prices should be.
• puppymaster 4y ago
  car manufacturers seeing the same sales data would then secure lithium supply 12 months ahead for an expected 12x growth, which then turns out to be only 5x. From macro data pov, the graph is still trending up. This is why guidance is important and also why lithium miners hedge against their inventory using future market. Supply and demand still applies, just that its effect is being amplified by overleveraged commodities trading market.
• broast 4y ago
  You're definitely right that the news loves to write headlines after any daily price fluctuations and pretend they know the reason, when in reality it usually explains nothing and becomes irrelevant by tomorrow.
• JumpCrisscross 4y ago
  > how most of the news is manipulated. For example they are equating lithium price fall with stagnating car sales Mass media is mostly crap at price-move stories. It’s less manipulation than false correlation. (The writers are incentivised to write, not to write a particular story.) There is a lot of thought that goes into lithium pricing. Current price moves are mostly speculation about supply, given near-term demand can be pretty precisely measured given battery production in operation and breaking ground. (Battery supply limits EV production, which itself outstrips demand, so volatility in consumer demand is tamped at the extraction layer.) Recent debate is about potential supply from brine in China.
• tourgen 4y ago
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• marcosdumay 4y ago
  > is not because of demand and supply but rather because of speculation and gambling That's what a zero interest rate policy buys you.
• rsecora 4y ago
  Batteries has a long supply chain, and in this case the market is forecasting a drop in demand. Due to more sources and increase output in the early stages of the chain, the offer has increased. Note also the article refer explicit to EV in different paragraphs . it's described in the article. > with the expiry of a more than decade-long programme of subsidies for EV purchases. > the expanding supply outlook for the metal is mainly what is pushing prices lower this year > Supply is coming on stream faster than you can say ‘boo’. > first-ever lithium deposit to be discovered in Iran’s mountainous western province of Hamedan. At an estimated 8.5 million tonnes, > China is also expanding its lithium-supply capacity from lepidolite, which, while considered the most abundant lithium-bearing mineral,
• seizethecheese 4y ago
  Your two premises don’t necessarily relate to each other. I believe both: - journalists attribute price changes to whatever story they can find. Sort of like how every day there’s a story of why the Dow moved by a fraction of a percent. - price moves are almost entirely supply and demand. Sure, speculation can change price in the near term, but considering the size of these commodity markets, you’d have to believe an absolutely enormous amount of capital is at play in speculation.
• metalspot 4y ago
  there are two factors that control market prices: supply elasticity and demand elasticity. commodities with inelastic supply and inelastic demand are prone to very wide price swings. inelastic supply means that increasing prices don't increase supply. in the case of lithium, it take time to bring new production capacity online, so supply is very inelastic in the short term. inelastic demand means that increasing prices do not decrease demand. in the case of lithium, batteries are a very valuable product, and the raw cost of lithium is a small percentage of their total value, so increasing prices for lithium do very little to reduce demand. the price movement here is totally predictable and exactly what you would expect based on standard economic formulas taking into account supply/demand elasticity. it is not speculation or gambling. demand went up, supply lagged, the price spiked, supply increased, the price went back down. electric car sales may still be growing but growing at a lower rate, and projected demand growth is probably decreasing relative to projected supply, so the price is falling.
• opportune 4y ago
  How so? The people physically purchasing commodities are doing so by determining how worth it is to them at the current (or future) price, same with sellers. Speculators are almost never actually taking delivery, but they are providing liquidity for buyers and sellers by participating in transactions as counterparties. The final price paid by the ultimate physical buyers is based on their own value judgment of quantity demanded per price, and the final price paid to physical sellers is based on that same price (of course, either could be willingly using futures instead of spot prices to reduce risk). Buyers and sellers could trade directly among themselves if they wished, and if the commodity markets were divorced from reality (either unable to deliver on futures contracts or having futures settled at different prices than their contracts stipulate) nobody would use them. Because speculators don’t take delivery, how they react to news and other events is only assisting in price discovery between the time a future is issued and settled, because at settlement time there is no immediate uncertainty regarding supply and demand in the spot market. I think you might be making a common mistake in your comment of equating news for popular consumption with actual news that traders, buyers, and sellers care about (usually very quantitative and well guarded data with nuances that an article for public consumption will never account for). Articles for popular consumption are not moving markets very much, especially in commodities where public involvement is low (vs stocks) and consequently public sentiment has little effect.