Commodities have always been seen as the ladders that can drive the growth of an economy. Economies of many Middle-Eastern countries have thrived because they possessed an important commodity, crude oil. Commodity trading has always charmed traders and investors. Commodities can be used as an alternative for investors to diversify their portfolio investment, besides securities. There are four types of commodities: metal, energy, livestock and meat, and agriculture. We have compiled a list of interesting commodity facts for you:
1. Oil production begins
Now considered as one of the main essential commodities, Oil was first produced back in 327 AD. China was the first country to introduce the world to oil production with the help of bamboo pipelines. Chinese engineers had to drill nearly 240 meters to extract oil. The purpose of oil production was completely different at that time. It was used to evaporate brine and salt production. That’s why oil was also known as the ‘burning water’.
2. OPEC Stats
The Organisation of the Petroleum Exporting Countries, popularly known as OPEC, releases data about global crude oil production by partnering with the United States Energy Information Administration. According to the data, OPEC members generate more than 45% of the total crude oil produced around the world. Even among the fully recognized crude oil reserves, the OPEC members house the most reserves, at around 81%.
OPEC has a prominent control over oil prices. Generally, this price fluctuates with the change in demand and supply, where demand is considered to be a part of an economy that is progressing. Whenever the global economy witnesses a surge, the demand for oil goes higher in terms of production and transportation. So, during the economic boom, the price of oil goes higher with demand. But now the situation has changed, with the US being a shale producer and not an OPEC member. At the same time, most of the oil-producing regions are Middle-Eastern countries where political stability is not a constant state. This has started making an impact on demand, supply, and the price of oil.
3. World’s Premier Futures Exchange
In 1848m the first futures exchange of the world was established. It was named the Egg and the Butter Board as it acted as a subsidiary of the Chicago Produce Exchange. In 1919, it was revamped and named the Chicago Mercantile Exchange. True to its name, agricultural commodities majorly dominated this exchange. A shift was seen in the 1970s when bond futures contracts were invented.
4. The Significance of Bulls and Bears
A market is said to be bullish when there is an upward trend while it is said to be bearish when there is a downward trend. The two markets got their respective names because of how their assigned animals act. A bull looks upwards while attacking with its horns and head, thus, representing an upward trend. Similarly, a bear uses its claws and swings its arms when it attacks, thus, represents a downward trend. Chicago’s sports teams accurately reflect these trends and symbols.
5. Versatile Copper
Copper is a versatile metal and also the first one used by humans. The archaeological studies suggest that its use began approximately 11,000 years ago, that is, during the pre-historic age. Today, copper is largely used in producing electrical products but in 8700 BC, humans in Northern Iraq used it to make artifacts. It is believed that was the Mesopotamia Civilisation that first started using this metal.
6. The Largest Producer of Copper
While copper was first used in Northern Iraq, it is Latin American countries that are deemed as the largest producers of copper. Over 1/3rd of the total copper production happens here. 5.5 million tonnes of copper is produced by Chile and 2.3 million tonnes of copper is produced by Peru, according to the United States Geological Survey. The U.S.A and China compete for the next two spots on the list.
7. Copper – An Important Commodity
The wide usage of copper makes it a crucial commodity. It is counted as the main component in manufacturing things like machinery pipes, electrical wires, etc. As the commodity is weather and corrosion resistant, and an excellent conductor of heat and electricity, it is used across various industries. Without copper, the production of metalloids like bonze and brass is impossible. Despite being the top producers of Copper, Chile and Peru still struggle with infrastructural issues and trade disputes. It also affects the supply and indirectly the global price as well.
8. China Gets Lead in Gold Production
Gold is a very common and precious metal, generally used for jewelry production. Because of its great resistance towards chemical reaction, it is used in medical and mechanical industries as well. China is currently leading to the production of gold worldwide. Australia, Russia, and the United States come after China in gold production.
Gold is largely considered as a stable and long term investment for its stable value and the surging price during the economic slowdown. Besides, it is a safe investment even when the value of dollars goes down. Gold has an inverse relationship with US dollars in terms of value.
9. Trade Wars and its Effect on Commodity Price
The direct effect of the trade war on commodity prices can be viewed through a US-China trade war. The impact was visible as the US increased the tariffs on Chinese products. Since the changes in tariff were announced, Copper futures on the London Metal exchange saw a severe drop in trading price. The drop is around 16% of the best price received in June 2018. Imports have also decreased. Iron ore imports from China were downed by 16% if compared to the imports in the first six months of 2018 and 2017 as well.
10. South Africa, the Premium Platinum Supplier
Nearly 75% of the world’s total platinum production comes from South Africa. The country produces nearly 120,000 kgs platinum annually. We also find the highest platinum group metal reserves in S.A. Platinum is known to be extremely corrosion resistant. It is also considered a good reactant for laboratory applications, biomedical applications, and oil refining processes. It has widespread uses in electronic devices, dental alloys, turbine blades, and glass as well.
11. The Second Most-Traded Commodity in the World – Coffee
It is almost impossible to imagine a morning without coffee. Because of its popularity in the entire world as the primary source of caffeine, it is the second most traded community in the entire world. It is valued at more than $100 billion. There are two variables of coffee futures contracts as there are two varieties of coffee beans, that is, Robusta and Arabica. The latter is deemed as the premium quality bean because of its high caffeine content. South America is the largest producer of coffee in the world, with major contributions coming from developing countries. Colombia, Brazil, and Vietnam are the top coffee producers.
12. Importance of Liquidity in Commodity Trading
Liquidity plays a crucial role to ease commodity trading. The volume of contracts is directly proportional to the ease of buying and selling a commodity that has less slippage or narrow spreads. Being the topmost traded commodity in the world, crude oil always attracts investors. Gold also has the potential and it attracts a large number of investors as well. But frozen fruits and timber contracts encounter liquidity issues very often. The main two deciding factors that affects the liquidity of commodities are supply and demand.
13. The US Dominates Soybean Production
The global soybean production is mainly dominated by the US as the top producer. Brazil, China, India, and Argentina are also recognized as the top soybean producers. The price of soybean largely depends on the demand for animal feed, biodiesel, meat, and dairy substitutes as well as natural elements like weather conditions. The value of USD also decides the value of soybean as the United States is the largest producer. With the trade war, it is said that now, the price of soybean is also affected by the tariffs levied by China on soybean produced by the US.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
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