Raw material or raw materials: prices, influence, dynamism

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Have we read or heard the word? commodity without recognizing precisely what it is about? It is a definition of the English language, used in economic jargon and in the world of investments usually as synonymous with raw materials. The expression future contracts, it is also linked to content related to the subject in question.

It is an interesting topic that deserves to be investigated and followed.

The word commodity it is also closely related to commodity. With the expansion of sacks of raw materials, new concepts appeared on this term.

The production of raw materials translates into the achievement of wealth for a country or region. In general, they are resources that abound in a specific area and not in others, bringing a differentiation between the areas of the planet that have them.

In spite of everything, when a nation depends on the production of raw materials essentially or mainly as a source of income for its economy, it can be interpreted as economic backwardness. To be strong, a country's economy also requires specializing in manufactured goods, the service sector, etc.

Raw Materials have little added value, they also present a considerable price volatility, caused by its scarcity and dependence or influence on items such as the weather.

Financial futures They make it possible to protect yourself from price volatility. Those who are producers of raw materials protect themselves from accidental falls in this regard by developing a future contracts, ensuring specific prices before raw materials are produced. This type of negotiation has existed for more than a century.

In financial markets it is feasible to invest in these assets as in other assets, without for this reason having to be physically owned. Some raw materials that are traded on these financial markets are natural gas, crude oil, sugar, gold, wheat, etc.

To make it exist profitability when exploitedThose who are producers of these items must resort to specific mechanisms to achieve this. Large initial investments are usually made to reach its exploitation.

Definition of the term merchandise

A raw material is a good that will be transformed during a production procedure determined to turn it into a consumer good, otherwise it could not be used directly.

They are items very close to their natural state before being exploited. They come to occupy the main step within manufacturing chains which will produce posts for consumption.

Natural resources such as energy or forestry can be categorized as examples of raw materials.

A kind of classification distinguish them could be according to its origin:

• Vegetable: Seeds, fruits and vegetables, wood, cellulose, cereals, etc.
• Fossil: Oil and natural gas.
• Animal: Leather, fur, meat.
• Mineral: Copper, iron, sackcloth, etc.

There are other different types and forms of classification.

Influencers in the economy of nations

Es evidente la gran relevance que estos recursos pueden tener en la salud de la economía de un país.

Let's analyze a nation as an example: Argentina:

It is a country that is rich in dissimilar resources. Gold, copper, silver, lithium, potassium, wood, sugar, corn, wheat, soy, fruits, hydrocarbons.

The percentage of GDP generated by the agro-industrial sector in 2015 was 30%.

Effects on the country's politics

Raw material prices repeatedly decisively influence the politics of a country. It can get to the point that a candidate for the presidency or other important office has to take into account what is happening in this sector and what is related to his nation, since it could cost him too much in his political maneuver.

In the Middle East, as an example, raw materials are especially the protagonists in terms of revenue for governments. Well, considering this, political campaigns are planned around this issue, with promises included. If prices drop or rise sharply, the influence could be significant.

What can change the offer?

Macroeconomic factors in general they impact the supply of raw materials. Similarly, other more specific causes may be present.

Copper, by way of example, a relevant raw material, has recently been affected by problems in key mining locations globally. The causes have been conflicts between producers and political entities, strikes that have occurred, meteorological phenomena, etc. All of this causing intermittent production breakdowns, which lead directly to an increase in the price of this raw material in the international market.

Exemplifying again: if for environmental reasons China decides to reduce the production rate in the plants that process iron ore, an issue that will most certainly become a reality, its price could be positively affected by news of this type.

The worldwide incidence of this mineral is great, and its demand or demand is closely related to investment in large civil works and infrastructures.

Prices and Investment

The IMF in a related report on the outlook for Latin America (April 2017) mentioned that there are parallelism between investment flows and commodity prices. For this conclusion, countries such as Argentina, Chile, Mexico, Peru, Colombia and Brazil were analyzed.

There has been evidence for years that the Relying on raw materials creates great vulnerability. High price rises can cause positive external shocks and vice versa.

The IMF affirmed that not only the investment of companies producing raw materials can be affected, the effects can affect investment in sectors such as construction, public management, commerce, transportation, among others.

Financial speculation with raw materials: How far does the problem impact?

The demand for raw materials has been increased by speculative bubbles on raw materials. This has led to an increase in agricultural production, as well as mining and energy exploitation.

Among other negative impacts, price volatility has been established with indicated preferred products. This, however, has influenced the growing areas and the products, bringing with it modifications in ecosystems, activating transmission speeds and affecting adaptive capacities.

It's a phenomenon, anyway, with a negative impact for the planet. El scope de los beneficios económicos se coloca por encima y con mayor prioridad que los impactos ambientales reales que podrían ocurrir. Se implementa un modelo para alcanzar resultados económicos, que de ninguna manera es sostenible.

Commodities and the dollar

Commodities and the link they show with the US central bank (FED) reference rate is of the type: if rates rise, the currency for which commodities are valued, which is the dollar, will tend to strengthen. This, in turn, will generate a sell in soybean investors, as an example.

Today in context

Economists reflect that after the crisis, for the first time a synchronized growth in parallel in the world.

El grupo de países desarrollados y las mayores economías emergentes están creciendo a la vez. La última vez que se vio este event fue en 2006.

Iron, aluminum, copper, zinc and nickel, which are industrial consumer metals, in five of the last six quarters followed an upward trend. China is influencing this event by restricting supply to exert control over productive capacity.

Stable prices are observed compared to the beginning of the current year 2017.

The presence of geopolitical tensions in Venezuela, Saudi Arabia and Qatar, they play higher. Washington, in turn, is planning protectionist actions.

According to the IMF, the outlook is uncertain, even when there are balanced risks.

Goldman Sachs mentioned that in the long run There will be sources of new demands that will support the return. As an example, metals were mentioned for the manufacture of batteries for the automotive fleet, for the production of solar panels or modules, wind farm turbines, etc. The required metals will be aluminum, copper, lithium, nickel among others.

For 15 years, China has been the main buyer of industrial metals. It consumes half of the production according to the analyzes described. A moderation in demand and a relief in prices can be expected in the coming year 2018, supported by the fact that China must undergo a transition of its economy towards stronger growth in consumption, unless there is an increase in consumption. . global demand or those named bottlenecks in the production procedure.

In the case of energy, the demand is strong, but the supply is the difference. There was more than enough natural gas and oil on the market, the exuberance of availability limited prices and depressed energy values. The previous summer this situation changed. The barrel of crude oil showed an appreciation of the 40% since last July.

There are readings for 2018 that the world will demand more crude from the United States. Even though it cannot be specified if the producers of this country will be able to satisfy the demand. The estimate is that it will be necessary to balance the market to raise daily production from more than six million to seven million.