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The market in strategic commodities

Commodities underpin our way of life…

They are the raw materials of our food, clothing, mobility, heating, medicines and entertainment, and crude oil is the most traded commodity in the world. It is a vital constituent of gasoline for cars, kerosene for jet fuel, feedstock for chemicals, plastics and pharmaceuticals as well as consumer products such as nylon, toothbrush bristles and Liquid Petroleum Gas for cooking. Base metals, including aluminum, nickel, copper and iron ore, remain essential for old economy industries including steel, electric wiring and the pipes in construction. For the new economy industries, including laptops, smartphones, tablets and electric car-batteries, strategic commodities such as tantalum, lithium and cobalt are vital — so much so, that their prices have tripled in the last two years according to consultancy CRU.

What is a commodity?

Commodities are the raw materials of our consuming universe and undifferentiated wherever one lives. For example, the natural gas used for heating homes in London is no different from that used in Rome or Moscow. Energy, metals, livestock and agricultural products are the three most valuable traded commoditiesEnergy is headed by crude oil worth some $788 billion in 2015, heating oil, natural gas and petrol. Precious metals like gold, silver and platinum and traditionally traded base metals have been augmented by the strategic metals of new industries.

Traded agricultural products include coffee, beans, wheat, cotton, corn, sugar, oats, rice, soybeans and animal products, either on the hoof or frozen, and eggs. One must also think of service commodities such as internet bandwidth, carbon credits and crypto currencies, including Bitcoin, Monero and Ethereum.

The commodity cycle: boom and bust

Prevailing business conditions, such as market confidence, government trade policies, currency fluctuations as well as weather conditions, are the principal factors affecting the demand, supply and price of commodities, and these factors vary from commodity to commodity and over time. Commodity trading notoriously follows a cycle of boom and bust. A case in point is the spectacular rise in the price of crude oil to a peak of $114 a barrel in summer 2014 and its subsequent collapse to $28. Weakness in commodity trading in 2015 was due to such factors as economic slowdown in China, severe recession in Brazil and falling prices for oil and other commodities alongside exchange rate volatility. In January 2018, the record setting cold in the U.S. and northern China triggered a surge in prices of natural gas. Brent crude oil rose to $70 dollars a barrel on the back of OPEC and Russian production cuts, a fall in U.S. crude inventories and the pending U.S. decision on whether to extend temporary waivers on sanctions against Iran. Read more


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