Supply is a Step Function

I really wish Econ would teach this in the supply/demand curve. For most commodities running near peak, one more unit of sale isn’t really a thing. The market is trying to push the suppliers to a new regime, but that is hard for extractive commodities. https://twitter.com/thestalwart/status/1387000909167738881

One more ton of copper means another mine, so that really means many more tons, not just 1. So you’re asking the producers to commit to a project and to raising their fixed costs in the long run. Hard ask for slim margins and volatile commodities.

As most production has relied on economies of scale sometimes the step function is pretty big. Don’t want to open a small copper mine, you want a giant one. With disparate demand actors and concentrated supply actors it’s hard to find equilibrium.

The commodity traders make a living of this imbalance and it pays to be in the middle in times like these. I’d be curious if more longer term contracts are being set up to certify supply and demand.