Thanks for writing this up, Whoostheking. I too have been playing with this idea when I was trying really hard to find a viable explanation for the cobalt price crash. It seemed to make perfect sense; the price of one by-product affecting the price of the other by-product. Almost like price cannibalism, if there was such a thing!
So I went away and did my own research. In my mind, there were a few things that need to be clear in order to prove that this was happening.
First thing that needs to be proven is price correlation. If this theory was correct, surely if I were to look at the price charts of each of these by-products I would find price swings of equal magnitude in
opposite directionsat any given time. In other words, if the price of Cobalt was up from 2017 - 2018, I should be able to clearly see that the price of Copper was down a similar magnitude from 2017 - 2018. Vice versa, if Cobalt was down 2018 - 2019, an up-swing of similar magnitude should be expected in the price of copper over the same timeframe. To make this comparison, here are the copper & cobalt price charts over the last 5 years:
All I could see here was that the Copper price was fluctuating madly and declining in the first 3 years while Cobalt price was in a slow down-trend. During the Cobalt up-trend from 2016, Copper price was.... also up??
Ok, maybe 5 years is too big a time-frame. So here are the price charts
over the last 1 year for more detailed analysis:
Over the last year, Copper price has actually
declined a little bit, and at the same time, as we all know too well, Cobalt price has crashed. I'm not sure what you're looking at to see the price of Copper "surging", Whoostheking. Even the share price of SFR, Copper-miner-supreme, has been on a down-trend this year. Copper is
not looking good, same for all the EV related metals.
So, with the above, we can say this theory has
failed the price correlation test.
The
second point I had to figure out to prove that this theory was viable, was about
Marketing. It goes like this:
In order for the higher price of Copper to affect the price of Cobalt, they would need to be both sold in the same Market, essentially to the same Buyer. For example, let's say I'm a miner of Copper and have Cobalt by-products. In order for me to
have to sell my Cobalt cheaper than I would like to (why would I want to do it if I didn't have to?), the Buyer would have to know that I am making a killing on my Copper, and therefore demand that I lower my Cobalt price. Get it? Now think about who actually buys the Cobalt and who buys the Copper. Are they the same people? Do battery manufacturers make massive amounts of Copper wiring as a "side business"?
Again, second point is mooted.
The
third and last point I had to look at to prove that this theory was well and truly impossible, was
Copper production volumes. If we can see a really big uptick in the global production volumes of Copper over the last year or so, that would explain why there is a lot more Cobalt being produced, and therefore too much supply that would suppress the price of Cobalt. So, here's another chart, global Copper production volumes over the last 10+ years:
From 2017 to 2018, there was an increased production volume of ... 5%. Not exactly what I would call a "massive surge in production"!
As you can see from the above,
all of my findings have so far contradicted this theory of by-product pricing canibalism. It is
not the root cause of the Cobalt price crash. I've said it before and I'll say it again, the root cause is the US-China Trade War. It is making all these manufacturers putting a cap on how much they are prepared to manufacture because there is too much uncertainty... they just do not want to stock up on the raw materials because they can't foresee themselves selling a lot of cars/phones/etc. because of the trade war. That is why
all of the materials associated with EVs, electronics, phones, tablets, etc. have seen their prices drop. It is across the board, Copper, Cobalt, Nickel, Lithium, you name it, they are all down.
But make no mistake, the moment that uncertainty is lifted, all hell will break lose on these materials.
