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Fluctuating prices are normal on the raw materials markets, but fluctuations have been particularly strong in recent years. There was a sharp drop in the price of lithium. What’s behind it?
The price of oil has fluctuated considerably over the past year. In the middle of the year, the price for a barrel of North Sea Brent was almost $100, but at times it was less than $70. There were also violent price movements for industrial metals such as copper and especially lithium.
From the perspective of raw materials analyst Thomas Benedix from Union Investment, the most important difference between the raw materials market and the stock market is the physical component. You can’t just conjure up raw materials. You always have to promote or produce them and this funding process is relatively lengthy.
There is a gap between supply and demand
It’s different on the stock market: Here a company can make a capital increase and “issue new shares virtually out of thin air. That’s not possible with raw materials.” From the expert’s point of view, this is one reason why prices on the raw material markets are more susceptible to fluctuations.
“This usually results from the fact that supply and demand for a raw material are not the same at a certain point in time,” says Benedix. “Sometimes the lead times, especially to bring a new supply of raw materials onto the market, are very long. And then demand can fluctuate strongly cyclically for economic or technological reasons. This then results in very large price fluctuations.”
Sharp drop in lithium prices
This can also lead to a sharp drop in price – as recently happened with lithium. The light metal is one of the non-renewable raw materials and was described in the past by Tesla boss Elon Musk as “the new oil”. The raw material is important for the production of electric cars and batteries. However, the price fell significantly last year and prices are a good 80 percent away from the all-time high in 2022. The recent reasons were an oversupply coupled with falling demand for electric cars.
Raw materials expert Benedix explains: “In recent years, there has been demand for industrial metals that are heavily used in the energy transition or in battery technology. For example, cobalt or lithium, but also nickel.” The price of lithium increased almost fivefold between 2021 and 2022. As a result of the economic slowdown, the price has now fallen back to its original level. “It’s obviously a very, very big roller coaster ride.”
Oil prices strongly influenced by world politics
A special case is the price of oil. According to Benedix, this is particularly strongly influenced by geopolitical developments – “be it through military conflicts, but also through organizations that try to influence the price of oil, such as OPEC.” The cartel of oil producing countries has a very large market share, especially in exports, and is trying to keep the oil price at a level that is opportune for them by cutting production.
Analysts at Union Investment expect oil prices to be calmer this year. In recent years, the close succession of unforeseeable extreme events such as the global Corona lockdowns, followed by the rapid restart of the global economy and the Russian war of aggression against Ukraine, have caused oil prices to fluctuate violently.