Economist Newspaper Limited. - Guide to commodities: producers, players and prices, markets, consumers and trends

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Cover design: BRILL

Cover image: Bill Butcher

Copyright The Economist Newspaper Ltd., 2013. All rights reserved.

Text Copyright Caroline Bain, 2013. All rights reserved.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-118-38371-1 (Hardcover); ISBN 978-1-118-42074-4 (ebk);

ISBN 978-1-118-70884-2 (ebk); ISBN 978-1-118-41736-2 (ebk)

Acknowledgements

I would like to thank Jessica Godden, who not only helped to compile and check commodities data but was also a great source of encouragement. Thanks also to my colleagues at the Economist Intelligence Unit (EIU) for their support and for giving me the opportunity to undertake this book. I am especially grateful to the experts on commodities that contribute to the EIU commodities publications they have taught me a lot.

Finally, thanks to everyone at Profile Books for their help, guidance and enthusiasm, and especially to Penny Williams for her meticulous eye during the editing process.

Introduction

WE LIVE OUR LIVES surrounded by products made, in part at least, using the worlds natural resources from the clothes we wear and the food we eat to the cars we drive, the houses we live in and the electronic devices we use. We depend on commodities, and commodity consumption increases with per-head incomes as countries become more developed.

Steadily rising, although at times volatile, prices in the past decade have underlined the economic importance of commodities and how dependent we are on them. The price of gold has soared to new peaks as currencies have endured a crisis of confidence; demand from China has pushed metal prices up; instability in the Middle East and North Africa has had its effect on the oil price; and food prices have been increasing in parallel with worries about whether there is enough to feed the world.

The exploitation and refinement of natural resources have been an integral part of human and economic development. The discovery of metals and subsequent experiments that determined their potential use were the catalyst for leaps in economic development and productivity. For thousands of years, people have been exchanging and trading natural resources agricultural products in particular largely in marketplaces throughout the world. Traders would often go far afield to bring back goods that were not produced domestically and so would command a high price. The first formal commodity exchanges started to emerge in the mid-19th century to meet the growing demands of a rapidly industrialising United States.

Commodities have a number of unique qualities. They are typically uniform in quality and lack product differentiation. For this reason, and unusually, there is a global price or benchmark for most commodities. Industrial commodities are usually used as inputs in the production of other goods and services, following some refining process on the raw material after extraction. Agricultural commodities are also often refined or processed in some way and are used as ingredients to make food and feedstuffs or textiles. Thus commodities are rarely bought directly by consuming households but are typically intermediate goods bought by manufacturing companies.

In its broadest sense, the word commodity can be used to describe any traded good (it is usually used for goods rather than services, but can be applied to both). Historically, it was also used to describe something of quality or value, but this interpretation has become largely obsolete although it does still apply to some precious metals. In recent years, the word has spawned a number of verbs, including commodify and commoditise. The former is to make something commercially viable, while the latter is more about reducing the power of producers as goods become hard to differentiate.