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The factors that affect commodity prices

Kotak Commodities | 24 Dec, 2013  | Follow Author | Add to my Favourites 
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What Are the Factors Affecting Commodity Prices?

What’s controlling your investments in commodities? Commodities are mainly raw materials that are used for applications in various core sectors. As a result, developments of these sectors impacts directly on these commodities. Traded across the world, these commodities have an impact on the global economic scenario, at the same time are impacted by the movements in the global as well as Indian scenario.

Who Can We Say Rides The Highway Of Commodity Prices?

If you thought that trading in commodities was all about economics, then there is no need to worry, as it’s not as complicated as it seems. The prices of commodities are impacted by its demand and supply. The trades on the NCDEX and the MCX are moved by several factors that are shown below:

Dynamics involving the demand and the supply of commodities change the value of the stocks and that changes the price of the commodity. External factors that impact the price of the commodity are the seasonal such as weather conditions and technical such as government policies etc. Let’s take an overall view of what exactly impacts the prices of commodities:

Weather or Geographical Conditions

- Changes in price due to weather: Climatic conditions such as the areas in which these raw materials are produced can impact the final output. This is very vital for commodities such as wheat, rice, coffee and other agricultural commodities.

- Natural calamities: Commodities from around the world are traded in the country and that means they will be impacted in the event of natural calamities or disasters around the world. Most commodity traders watch out for any such event, as they directly impact the prices of goods and the supply of these commodities.

Economic Conditions

- Consumer Demand: The demand for these commodities can determine the price of the commodity and what it should be traded in.

- Internal Policies of the Government: Often, the laws of the land govern the price of the commodity. In India, with every annual budget, there are changes in the government policies. This changes the prices of goods that are imported and exported. Not only that, internationally traded goods have a major impact with the change in policies of that country. One of the biggest raw materials that is traded internationally and is heavily impacted by these policies is crude oil.

- International Economic Conditions: Even if India is not facing recession or any other economic condition, there is a chance that any shift in the global economy will impact the prices of the commodities. The commodities market is one of the primary markets to be impacted with any changes in the global economy.

Political Conditions

- War declared or sudden coup: It has been noted in history several times. Very often, we see it in the papers but we feel that such news do not impact us in anyway. Yet, we are often unaware that the declaration of war in another country is often disastrous for the global economy. This means that the prices of the goods that are imported from that country will soar raising the stock value of these goods and the value of the stock.

- Declaration of laws on specific countries: Recently, several countries have raised objection on the import of goods and raw materials from black-listed countries. As a result, these goods may not be traded in the commodities market. In another twist, the duty levied on the import of these goods and raw materials may impact the price or the stock value of the commodity. It’s important to keep reading the political as well the economic section before investing.

In the Commodities Market:

Commodities are traded in two timeframes – short term and the long term. The prices of commodities are also impacted by the trades done within day, the week or even the month. It all depends on the kind of trade you are planning to conduct. Day-to-day happenings can be viewed in the intra-day movements giving us an overview of the internal and global conditions. Long-term judgments are also based on the movements of the global happenings.

Below is a snapshot of how commodities have been traded and what has impacted them:


FMCG: Consumer demand, Government Policies

Agricultural Commodities: Weather & seasonal conditions, government policies

Metals: Global market conditions, government policies, developments in the global scale such as competition

Crude Oil: Global market conditions, government policies, OPEC

For more information on the basics of the commodity market, click here.

Research Courtesy:

Business Today

Economic Times

About Kotak Commodities

Kotak Commodities is promoted by the Kotak family that has decades of experience in commodity trading, they have a full-fledged research division involved in macro & commodity complex research and commodity specific research. This is combined with a strong and well networked sales force, which helps deliver current and up-to-date market information and news. For more information visit their website.


For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.