Market Discussions

This started as a reply to this thread, wherein the OP noted falling mineral prices and stated that he was now in dire trouble because his input pricing for the long build was locked in at old mineral prices. In my initial reply to that thread I said not to worry, the fundamentals were that every other producer was in the same boat and therefore prices of the end product will largely reflect their input pricing and not the current input pricing. I was wrong. Very wrong. (again).

Anyway, it all got a bit wordy and turned into thoughts about whether traders, more particularly speculators, are beneficial to an Eve market. The real world answer has always been that they smooth out bumps and dips in a supply chain - the cost of the coal to fire the power station changes day by day, minute by minute - but your electricity bill will keep the same kwh rate for months at a time; barrels of brent crude change price constantly, the cost to fill up your car may only change every week or so. Your electricity bill and your petrol bill will follow the trend of the fundamental fluctuations but not the individual bumps and dips.

In Eve, I'm not so sure. For one thing, in the real world, any major market dwarfs any individual investor or institution - there's not a trader on the planet who could purchase an entire day's global oil production. In Eve there are many hundreds of people who could purchase an entire daily volume of tritanium. Wallets are bigger than the markets.

Anyway, by way of illustration, seeing as it's what I mainly do, and what I was originally replying about - freighters. I'm not a particularly big manufacturer, but I'm hoping large enough to be reasonaly representative. I currently churn out four every 12 days. About 5b at any one time is tied up in minerals making components, another 5b is tied up making freighters from components, another 5b of end product is potentially sat in sell orders, and another 5b is needed on reserve to purchase the next batch of minerals. That's 20b before we even count the cost of the cap BPOs and a cash flow reserve, all to effectively make one third of a freighter per day.

It takes about 24 days between minerals going in and a freighter using those same minerals popping out. That is, once you stop producing it'll take 24 days to actually stop, and if you want to start it'll take 24 days before you see the first result. Once rolling, you're in for the ride and can't adjust course easily.

Freighter prices, as can be seen from the market graphs, plummeted not 24 days after mineral prices started tumbling, but immediately and sharply down to recycle value and lower (but not so much lower that it becomes attractive to do so).

In short, freighter pricing is determined by traders and not by manufacturers. I would hazard a guess that a lot of people were buying them during rising mineral markets as a mineral basket purchase. I would also hazard a guess that a lot of people purchased a number expecting a lot more freighters to be destroyed during burn Jita, the success of which turned out to be realised far more in people's behaviour than in outright carnage (though not belittling the scale of the carnage).

My heart sank a little when I saw someone trying to offload fifty obelisks through the Bulk Trade mail shot (at 1.3b each if I recall correct) just after Burn Jita; the price a trader needs achieve for his goods is determined purely by his purchase price (and acceptable loss/walk away margin) and the current recycle value - cost to manufacture has no relevance in these calculations whatsoever. In most instances this is beneficial - traders smooth out commodity values, ironing out bumps and dips in pricing brought about by variations in the fundamentals. When mineral prices started to rise in earnest this is certainly what happened - the batch of freighters I had out on the 14th December saw profits of only 30-40m each - this translated as a mere 890 thousand isk per manufacturing slot per day - freighter prices were restrained by traders despite rising mineral costs. I'm beginning to think however that once a market's valuation becomes solely determined by the traders, with no regard to the fundamentals, this might begin to be to the detriment of a smooth market.

I had four freighters come off the lines on the 6th of May. The charon in that mix was built using minerals 24 days earlier, and had a build cost (ME3) of 1.28b. Forge regional average of a Charon on the 6th of May - 1.21b. Another four come off in a week's time on the 18th May, the Charon in that batch has a build cost of 1.26b, Jita price today looks to be 1.19b. And another four come out on the 30th May.

Naturally, I account for such instances in my cash flow, always ensuring I can keep around 5b worth of stock hanging around. By the 30th May, when I'll potentially have 15b worth of stock hanging around, I certainly can't afford that sort of dent in my cash flow and as such will likely have to cease production for the batch scheduled to go in next week.

This is all sounding a bit whiney and it's not intended as such, I'll adapt, do something else and likely restart production when the market allows - but the long spool up time involved in production means that traders will not have smoothed a market but made it much more spikey. And speculators are drawn to spikey markets, potentially amplifying the effect further.

Traders do not contribute to the market if you look at just the items and isk. However, im sure many nullsec entities could not exist without at least one trader supplying local markets. Non-station traders do more than buy and sell, they build and organize supply chains. Station traders do as you said and "smooth out bumps and dips in a supply chain." both of these types of traders are useful.

"In Eve there are many hundreds of people who could purchase an entire daily volume of tritanium. Wallets are bigger than the markets."

I highly doubt that. First of all, i can almost guarantee you only accounted for one regions trade volume. Jita alone has 28,698,700,000 trit daily volume.. Now add in amarr, rens, the rest of highsec... lowsec... and nullsec. Then consider that to buyout the trit, the trader needs liquid isk. There are very very few people with over a trillion isk in their wallet. Also consider that we are only talking about ONE DAY's trit. The market could recover within the month, and the guy with a couple hundred billion trit is now screwed.

Um have you looked at the volume of trit in Jita for the last two days? It fell off a cliff. Jita is moving only about 8% of normal volume in trit over the last two days. So where has this demand gone? One would think another trading hub outside of Jita.
But no all regions around Jita have also droped volume to almost nothing. Not just trit but all minerals. Just as this guy making freighters is experiencing a slow down and mark down of freighters. He is inclined to stop production maybe lots of people are inclined to stop production, maybe lots of people have stopped buying minerals as well. Maybe demand for minerals has all but dried up. Interesting. This is far bigger than just this one guys observation. Markets all across eve are in a near stopage.

You can't blame traders for your troubles. If you manufacture an item that has a long build time and you don't have a contract with someone to buy the item at a certain price you are taking the risk that in the future the item will not be worth what you want it to be.

Really, it is the responsibility of the manufacturer to look at current and future mineral values and volatility. When mineral prices are going crazy high you took a chance and bought high. You got burned. Fine. But don't start accusing others as being bad for the market.

Traders may not be beneficial to you in this circumstance but they are when mineral prices start to to go up and traders re-list items at current mineral price when you used old, cheap minerals. Traders are also beneficial to anyone in the market to buy a freighter.

And since when does anyone care about being "beneficial to the market"? I don't even know what that means. You are supposed to turn money into more money anyway possible under the rules of the game. Business 101

A very well-considered argument.

"Traders" are beneficial to the market because they smooth the transition from producer to consumer, the distribution effect.

"Speculators", however, may not be, and precisely for the reason you suggested: relative market size.

When speculators act as information specialists, then they are agents who ensure prices best represent all the available information, which is good for the market. For example, the rise in the price of minerals through speculative buying.

In Eve, however, even a single speculator can influence key markets, the term that gets tossed around here is "market manipulation". This is very real, and in no way "good" for the market, as it creates artificial volatility, which in turn creates uncertainty for legitimate market actors.

That said, sowing chaos in the markets is one of the aspects of market manipulation that I enjoy, if not the most. The overall health of the market is not my concern.

You're whining about evil station traders/speculators but let's say whole story:
If you're in freighter manufacturing business longer than for 1 month, technically you should be fine. In this case it would be correct to mention that you also had an oportunity to build couple of freigters using cheap minerals (bought before sharp rise of mineral prices ) and had oportunity to sell your freigters for higher price. Your losses should be covered...
EDIT: I don't want to sound harsh, but it's EVE - beautifull and cruel at the same time....

Good post. What you have said here describes why, thus far, I have not gotten into manufacturing (though there are multiple reasons for that, most involving skill points. x_x). As a trader, business is good regardless of what material costs to make items actually are. For the manufacturer however, situations like this arise where, due to events outside of your control, your operations may suddenly become far less profitable, or maybe not profitable at all. Though... I would think, and hope, that prices will balance out after a time so that they better reflect the material costs it took to make them.

We live in interesting times. :o

There are two kinds of traders in my eyes, Station only traders...who never, ever undock and merely buy and re-sell items on the market (and possibly items in other stations in the region using the trader skills) and traders who buy, haul and then sell for a profit.

The station only traders help level out the peaks and valleys in price, keeping the relative price of a good steady. That isn't to say large shifts in supply or demand can't uproot an established price point, but it is the role of station traders to keep the peaks and valleys in check (and profit from doing so).

Hauling traders fulfill a logistical need of the market. 1 billion trit, while valuable, is useless if scattered across 25 different systems and held by 100+ different people who want to sell it. The hauler helps smooth out the peaks and valleys of prices across distance, connecting supply with demand and profiting from the difference. It is because of them that the 1 billion trit can be brought to market properly and thus supply a manufacturer who needs materials on that kind of scale.

Without station traders, the price of a good would swing wildly, even without being pressured by outside supply and demand. Depending on the price of a good for your business would be harder if you suddenly had to buy more of it and found that the price was up 20%.

Without haulers, the markets would have difficulty supplying anything in bulk, and the availability of more niche products would be very sporadic.

Wow, these threads lol, the lightminided are taking it seriously.

Market cannot exist for the players by the players without traders.

the way Im seeing your post (intentions thoughts etc)
Hence you are suggesting we legalize Bots, if you cant have them (or the friends you socialize with) then the final outcome should probably be all NPC orders, similar to that of SISI servers.

once again, NOT both but either or, just to be crystal clear.

This is a pretty dumb question to be blunt.

If we didn't have traders, no one could sell any mission loot or moon goo or mined minerals or anything at all.

There are no NPCs to just dump your stuff into to get ISK.