Top Traded Commodities

Brent Crude Oil

Despite moves towards greener energy in recent years, crude oil is still
very much in high demand. It powers our cars, heat homes and produces
fertilizers, pesticides and plastic.

Brent Crude is one of two major types of crude oil which act as global
benchmarks for the industry, the other being WTI crude. Brent Crude is
extracted from the North Sea and is characterized as a light, sweet crude
oil.

Light because of its low density and sweet because of its low sulfur
content. Both of these qualities result in Brent Crude being relatively easy
to refine.

WTI Crude Oil

West Texas Intermediate (WTI) crude acts as another benchmark for global
oil prices and is also one of the most widely traded commodities in the
world.

It is drilled in various states throughout the US and is also described as

both sweet and light, having even lower sulfur content and density than
Brent Crude.
The prices of both WTI and Brent Crude historically have positive
correlations with global economic growth. When the economy is growing,
demand for oil inevitably increases which drives up its price.

Natural Gas

Natural gas is another important source of global energy, which is found

deep below the surface of the earth. Although a non-renewable energy
source, natural gas is the cleanest burning fossil fuel and is very versatile,
meeting a lot of the same needs as crude oil.

As the world cuts emissions in an attempt to reach net zero by 2050, the
use of both crude oil and natural gas will inevitably need to be curtailed.
However, due to producing less emissions than oil, it is expected that
natural gas will continue to be a major source of global energy during the
transition.

Gold

A precious metal which has been sought after for centuries, gold is now
primarily used for jewelry production and as a vehicle for investment and is
primarily mined in China, Australia, Russia and the US.

Gold is one of the most traded commodities in the world but, in times of
uncertainty, it often becomes even more popular with investors. This is
because it is considered a safe haven asset, meaning that it tends to retain
value or even rise in price during times of economic and political upheaval.

Silver
Another precious metal, silver, has also been historically sought after by
mankind for many centuries. Unlike gold, around half of silver’s demand
arises from its industrial uses, such as in solar panels and electrical
products.

However, like gold, a lot of its demand is controlled by jewelers and

investment. Whilst silver is also considered a safe haven asset, it is not
seen to be as reliable as gold due to the fact that gold's value is less
dependent on industry.

Copper

Copper is a very important metal in the modern world. Due to its

characteristics of being an excellent conductor of electricity and heat, it is
widely used in the electronics and building industries.

Chile is an important producer, accounting for almost a third of total global

production in 2020. Peru, China and the US, to name a few, are also
important, though smaller, producers.

Due to its use in manufacturing, the price of copper is highly dependent on

economic output and, consequently, demand for the base metal is seen as
a reliable indicator of economic health – earning it the nickname “Dr
Copper”.

Coffee

With an estimated 2.25 billion cups drank a day across the globe, it should
come as little surprise that coffee is one of the most traded commodities in
the world. Coffee beans are grown in more than 50 countries, in what is
known as the “coffee belt”, with its largest producer being Brazil.

There are two main varieties which account for the vast majority of coffee
production: arabica and robusta. Arabica is generally considered to be
higher quality, making it more popular, accounting for around 60% of total
coffee consumption.

When it comes to trading, arabica tends to have more stable pricing, while
the price of robusta is generally more volatile.

Sugar

Once a luxury reserved for the wealthy, sugar has long been a highly
sought after commodity. Its use in food and drinks all over the globe,
together with other lesser known uses, such as in medical equipment and
beauty products, make sugar one of the most widely traded commodities
on the market.

Although sugar is far more accessible these days, it is still considered

somewhat of a luxury good, meaning that, as with other commodities on
this list, its demand and therefore price tends to be positively correlated
with economic performance.

Cocoa

The next of the most traded commodities on our list, cocoa is used to
produce one of the world’s favorite products, chocolate!
Production of cocoa is mainly concentrated in West Africa and Latin
America, with West Africa accounting for 70% of global production. The
vast majority of commodities are traded in US dollars, however, cocoa is
one of the last remaining which is still typically traded in British pounds.

Cotton

The majority of people reading this article will most likely be currently
wearing at least one item of clothing made using the final item on our list of
the most traded commodities in the world.

But besides clothing and household items, cottonseed is also used as feed
for livestock, it is made into oil which is subsequently used in the
manufacturing of soap, margarine, rubber and plastics. Linters, which are
fibers found on cottonseed, are also used to make bandages and bank
notes. India, China and the US are the largest three producers of cotton in
the world.

Wheat
Wheat is one of the most traded agricultural commodities in the world. It is
“unrivaled in its range of cultivation” thanks to the diversity of its variants
and the degree to which it has become central to human culture. In 2021-
22, the world produced 777m tonnes of wheat and consumed almost as
much.

Whether by value or weight, wheat accounts for more than 40% of the
global cereals trade.
Wheat is principally grown and consumed domestically, but significant
quantities are also traded internationally. The largest exporters are Russia,
Canada, the US, France and Ukraine. Its biggest importers include Egypt,
China, Turkey, Indonesia and Turkey, with Pakistan and China emerging
as the fastest-growing markets.

Climate extremes, such as floods, droughts and heatwaves, already

strongly affect the world’s wheat crop. In India, for example, a blistering
heatwave in early 2022 shriveled swathes of harvest-ready wheat crops,
hindering the country’s ability to raise exports in light of the war in Ukraine.

And research shows that the continued rise of global temperatures could
reduce yields around the world.

Factors that Influence the Commodity Prices in

the Market
Commodity prices are mostly price inelastic, if the demand for a raw
material suddenly surges, the global output cannot respond immediately.
Mines can’t suddenly increase the production levels and consumers cannot
always substitute one metal for another when prices rise or fall.

1. Mother Nature
Weather and natural disasters around the world often have an effect
on the price of materials. Whether that be a bushfire in Australia,
Hurricane in the United States or an Earthquake in Chile An example of this
was in 2010 an 8.8 magnitude earthquake in Chile caused production at
four major mines to be suspended - affecting about 20% of the country's
capacity.

2. Supply and Demand

Supply and demand are the most important factors in the determination of
the path of least resistance for commodity prices, knowledge of production
data from major producing nations is an essential ingredient in assessing
total output and supplies, e.g Chile for Copper and Russia for Nickel.
Public and private sources of data are available from trade organizations,
research companies and government. In addition to this, new alternative
data is available such as satellite imagery, looking at points of interest
along the supply chain.
Demand is ubiquitous, almost every human being on planet earth is a
consumer of commodities which are the staples of everyday life all over the
world. Commodities such as copper have additional indicators that can
provide insight into demand, such as the health of the US housing industry.

3. Storage levels & transportation constraints

Transportation constraints of the physical commodity that occur or storage
may be required along the supply chain, this is very much dependent on
the type of commodity and the conditions required for transportation and
storage.
High-level stock levels can be determined by looking at exchange
warehouse stocks such as the LME, COMEX & SHFE and to an extent,
Satellite data and AIS shipping data can be used to gain further insight into
the transportation and storage of commodities around the world.
4. Geopolitics
As commodities are extracted from specific areas around the globe,
political issues in those regions can affect the price of that commodity.
The Iranian’s attack on Saudi Arabia in September 2019 forced the
shutdown of the facilities, cutting the country's oil production from 9.8 to
about 4.1 million barrels of oil a day, losing 5.7 million barrels of oil a day or
about 5% of global production, causing a 20% price rise, the largest since
Saddam invaded Kuwait 30 years ago.
Logical routes being cut off, e.g in August last year (2019), Iran seized the
third tanker in the Persian Gulf which had a significant effect on the price of
oil.

Workers striking against copper-producing mines can occur from time to

time, with the majority of copper production concentrated over a handful of
areas (The top 20 mines produce 40% of the world’s copper) this can have
a considerable effect on the price of copper.
The sudden imposition of a tax or tariff on imports or exports by a
government (E.g in the US & China) often adds to the volatility, and the
health of the world's two largest economies has a strong influence on
nearly every commodity.

5. Market information
There are a number of indicators of economic performance which are
closely monitored and can influence the price of commodities. These
include economic outputs, unemployment rates, inflation and availability
and attractiveness of substitute goods (e.g replacing Copper with
Aluminium).
Major Actors in Commodity Market
Speculator
A trader who enters the futures market in pursuit of profit, accepting risk in
the endeavor.

Hedger
A Trader who enters the futures market to reduce some pre-existing risk
exposure.

Broker
An individual or firm acting as an intermediary by conveying customers'
trade instructions. Account executives or floor brokers are examples of
brokers.

Conclusion