The role of commodity prices for socio-ecological transformation: Mineral extraction, trading houses and derivatives markets – The cases of cobalt, copper, lithium and nickel in Sub-Saharan Africa

Projektteam: Dr. Cornelia Staritz, Ph.D., Dr. Bernhard Tröster, MA, MSc (ÖFSE), Aleksandra Wojewska, MSc, MA
gefördert durch: Jubiläumsfonds der Österreichischen Nationalbank (ÖNB)
Projektlaufzeit: 01.12.2020-28.02.2023
Projektpartnerinnen: Austrian Foundation for Development Research (ÖFSE)

Currently discussed socio-ecological transformations in the areas of mobility and energy provision depend on the massive increase in the availability of exhaustible mineral resources. This leads to a dilemma, since resource extraction entails crucial sustainability concerns in producer countries as well as related to the exhaustion of natural resources per se. Research on sustainability implications of resource extraction has focused on the physical sphere without giving due consideration to price setting mechanisms and related financial market dynamics, and how the physical and financial spheres interlink. These interlinkages are however crucial for understanding (i) the feasibility of transformations in the areas of mobility and energy and related impacts on (ii) sustainable development in mineral producer countries and (iii) absolute resource use.

This project assesses price setting mechanisms in mineral global value chains, and how they are linked to commodity derivative markets, given their pivotal role in commodity price discovery and risk management, and the trading strategies of commodity trading houses. The analysis focuses on the minerals cobalt, copper, lithium and nickel given their importance in current socio-ecological transformation strategies in the area of mobility and energy provision While established derivative markets exist for copper and nickel primarily on the London Metal Exchange (LME), price benchmarks and risk management on derivative markets are just evolving for cobalt and lithium, which contributes to the making of exchange-based and financialized pricing systems. Prices setting dynamics and their sustainability implications are analysed throughout these mineral global value chains, from extraction in key Sub-Saharan African producer countries, through leading commodity trading houses in Europe, specifically in Switzerland and the UK, to EU-based buyers of minerals and metal products. A particular focus lies on critically analyzing the role of financial derivatives markets where 'global prices' are set and finanzialization processes on these markets.

The methodology is built on a combination of quantitative and qualitative methods, including (i) trade, industry and financial data analysis, (ii) document analysis (mineral policies and outlooks, industry-specific publications), (iii) econometric analysis (financialization of metal markets and price transmission), and (iv) semi-structured interviews with actors along and around the mineral global value chains. Interviews will be conducted in European consumer countries and in selected producer countries in Sub-Saharan Africa, in particular in Zambia and Zimbabwe. This includes firm actors in physical trade (international mineral commodity trading houses, mining companies, traders in producer countries, buyers of mineral and metals) and the financial sector (commodity exchanges, price reporting agencies, financial investors) and institutional actors (relevant government agencies, business associations, civil society actors). Combining these methods is required to analyse trade and production linkages and related price transmission, underlying firm-level strategies and regulatory and institutional contexts, and sustainable development outcomes along mineral global value chains.

Contact and Researchers:

University of Vienna, Austria
Cornelia Staritz
Tenure Track Professor in Development Economics, Department of Development Studies, University of Vienna

Aleksandra Wojewska
Doctoral researcher, Department of Development Studies, University of Vienna

Austrian Foundation for Development Research (ÖFSE), Vienna, Austria
Bernhard Tröster
Researcher, Austrian Foundation for Development Research (ÖFSE), External Lecturer University of Vienna