What are the Factors Affecting Commodity Market Prices?
When trading in commodities we all would like to maximize our chances of success of making profits. Being successful will depend on many factors, one of which is our ability to predict, anticipate, or speculate on when commodity market prices in India may rise or fall. Before we can think about WHEN the prices rise or fall we need to know something about WHY they would do so. The factors which cause commodity prices to rise and fall are wide-ranging and varied. This article aims to address just a few of these to give you an idea of what you should be researching into to improve your knowledge.
World Issues such as War
War is one of the major factors affecting the commodity market. For example, the majority of crude oil is produced in Middle-Eastern countries. If those countries are involved in war, the production rate of crude oil goes down, resulting in increased demand and therefore higher prices. Other world issues that have significant effect on the production of commodities could be natural disasters, including floods or other extreme weather conditions, fires, famine, drought etc.
Income and Wealth
Evidence suggests that as a country becomes more wealthy, the consumption habits of the population changes. Increased wealth supports increased consumption of protein-rich foods. This directly increases the demand for meat (livestock) but therefore indirectly increases the demand for the crops needed to feed the livestock. With wealth also comes more economic activity. More building increases the demand for steel in particular to give just one example. Another example is increased consumption of energy when the number of private vehicles in use increases.
Every so often, revolutionary new technology is made available that dramatically decreases the cost of production of a specific commodity. An example could be new mining equipment that allows for deeper mining, automated crop picking machinery that can be operated by a few people therefore saving on wages. The new technology may initially be unaffordable, but if it can be invested in, it brings down the cost of production over time. Other common factors of commodity prices in this section (cost of production) include the wages that the workers demand. This could be affected by government policy or unions, which takes us onto the next point.
In some countries, particularly those with a large low-income population, which includes India, the government will provide a subsidy on certain commodities to make them affordable to the people who need them but do not have the means to pay the actual price. LPG is one such example where low-income earners have the right to purchase LPG (for domestic cooking and heating use only) for less than the actual cost of production. The shortfall is made up by the government, and that’s what we call government subsidization. Subsidizations are subject to change. They may be applied or removed for different commodities, the amount of subsidization can be increased or decreased, or the number of people eligible to benefit from subsidization can be re-assessed. All these factors have an effect on the demand of the commodity in question, and therefore affect its price on the market. Other government policies that have an effect on commodity prices could include taxation rules that restrict the importation of cheaper alternative commodities from abroad, that restrict the amount of disposable income available to inhabitants.
These are only a few of the common factors affecting commodity prices that you should learn more about and use to your advantage. Of course there are many more that we have not covered in this article. More information can be found online, but if you want the best online training material with the opportunity to ask your own questions and get personalized answers, you can avail of the same from GWC INDIA.
GWC India are a company offering extremely low-cost commodity trading brokerage charges, coupled with a range of extra bonus features that every GWC customer receives at no extra charge. Use our commodity brokerage calculator to check the brokerage charges online. One of the bonus features that GWC pride themselves upon is the excellent commodity trading training sessions they provide. These take place in the form of webinars broadcast live online, presented by professional and knowledgeable trainers from the GWC INDIA team. After each webinar there is an opportunity for viewers to put their own specific questions to the trainer and have their personal queries addressed.
FREE ONLINE COMMODITY TRADING TRAINING WEBINARS are just one of the features that make GWC INDIA a great choice for anybody wishing to do online commodity trading in India 2023. Contact their friendly and knowledgeable customer service representatives on +91 80122 78000 to learn about the full range of bonus features you get absolutely free of charge as a GWC India customer.