Commodity Trading Explained

The global commodity market is worth billions of US dollars and organisations that buy and sell and are involved in commodity trading are always on the lookout for the best talent to grow and develop their business. Redstone Commodity Search works with various players across the global commodity trading industry including Trading Houses, Producers, Majors, Utilities, Merchants, Hedge Funds, Investment Banks, and Brokerages.

Through our retained and contingency models, we are well placed to search and select the best talent for your business. We are a specialist commodities search agency and are passionately committed to delivering rapid and accurate responses to all your human capital requirements.

To date, we have filled many different positions across the globe, screening for a multitude of skills and required expertise across commodities. Our consultants have completed assignment in Africa, Asia, Australia, Europe, Latin America, Middle East, and North America. We cover the full spectrum within a typical commodity trading office, including positions in trading, sales, operations, logistics, trade finance, risk management, credit and other departments. All candidates are screened and interviewed to ensure their suitability to each positions.

Examples of frequent open trading positions include:

Redstone Commodity Search aims to be a partner, not just a provider, in the recruitment process and endeavours to keep you updated all year round on a diverse range of appropriate talent available in the market.

What are Commodities?

A commodity is any physical object that can be bought and sold. Commodity trading generally refers to the purchasing and sale of these goods in order to obtain a profit from the margin. There are hard as well as soft commodities.

  1. Hard Commodities refer to products that are extracted from the ground, usually within the mining and energy industries.
  2. Soft Commodities refer to products that are grown or farmed. These include livestock, grains and oilseeds.

All of these commodities are an incredibly important part of our global world and permeate everything we use in our daily life. For instance:

  • Grains are used to produce breakfast cereals, breads and cakes.
  • Aluminium, steel, and cement are a necessity for infrastructure and are used in building bridges, houses, and roads.
  • Oil products are the essence of a variety of products such as makeup, contact lenses, cameras, aspirin, credit cards, roofing for houses, bitumen (asphalt) and fuel for our cars and ships.

What Makes Commodities Unique?

As commodities are in essence, goods and raw materials that are traded in a commercial manner, they form the basis of various other commodities, acting as the building block for various items and products used billions of times each day throughout the world, including chocolate in the case of dairy, cocoa and sugar for example. Uniquely, in the case of commodities and commodity trading, the values and thus the prices of commodities are standardised, with values set by global commodities exchanges. These exchanges include metal, oil, mercantile and other exchanges around the world.

Crucially, this means that no matter where in the world and where in the global commodity market a good or raw material is produced, equivalent units of the same goods, products and raw materials will all hold the same value throughout the world, no matter where it is traded.

Categories of Commodities

The main categories of commodities include:

  1. Agricultural commodities – Including raw materials such as cocoa, coffee beans, sugar and others
  2. Livestock commodities – Live cattle and livestock and meat
  3. Metal commodities – Metals traded in their raw form, as well as precious and highly valuable metals such as gold, silver, bronze, platinum etc.
  4. Energy commodities – This includes the commodities traditionally used to produce energy such as petrol and oil

Commodities: The 3 Main Subsectors

Energies: including but not limited to:

  • Natural gas, liquefied natural gas (LNG), condensates
  • Oil products – crude oil, residue (fuel oil), light distillates (naphtha, gasoline, gas oil, liquefied petroleum gas (LPG)), middle distillates (jet fuel, diesel fuel, kerosene), heavy distillates (bunker fuel / marine fuel, bitumen / asphalt)
  • Power
  • Renewable energy – solar, wind
  • Biodiesel, ethanol
  • Thermal coal

Metals: including but not limited to:

  • Minerals
  • Ferrous metals – cast iron, steels, stainless steel
  • Non-ferrous metals – precious group metals (PGM) (gold, silver, platinum, platinum, iridium, rhodium, palladium), base metals (aluminium, aluminium alloys, copper, lead, nickel, tin, zinc), minor metals (antimony, cadmium, chromium, cobalt, magnesium, manganese, iridium, rhodium, silicon, titanium, tungsten, vanadium, zirconium)
  • Ferroalloys and noble alloys / noble metals
  • Scrap Metal

Agricultural and Soft Commodities: including but not limited to:

  • Grains and oilseeds (rapeseeds) – wheat, corn / maize, barley, canola, sorghum, soybeans
  • Edible oils – tropical oils (coconut oil, palm oil), vegetable oils (sunflower oil, corn oil, soybean oil, sesame oil, peanut oil), nut oils (almond oil, cashew oil, pecan oil, walnut oil)
  • Coffee, cocoa, natural rubber, sugar, molasses, livestock, dairy products, fruits, vegetables

Certain parts of the globe have a particular rate of production of specific commodities and some products can only grow in certain countries. For example, the key coffee growing regions of the world are mainly in Latin and Central America, East Africa and Southeast Asia. The main countries for grain origination include Ukraine, the Black Sea and the American Midwest. Australia has a large metals and mining industry.

Commodity Trading – Cash and Derivatives

The physical purchasing and selling of commodities is usually referred to as cash trading. For example, cash grain trading would refer to the buying and selling of physical corn or wheat, to profit from a margin. Physical commodities can also be traded through the use of financial instruments (derivatives) on exchanges like LME (London Metal Exchange), CME (Chicago Mercantile Exchange), and NYMEX (New York Mercantile Exchange).

Derivatives are either exchange-traded or OTC (Over the Counter) and their value derives itself from the underlying physical commodity. Examples of derivatives include futures contracts, options and swaps. Commodities are traded derivatively for a variety of reasons. For instance, a vegetable oil producer might want to mitigate the risk of losing money by hedging against bad weather which could affect their production while a proprietary trading firm uses futures contracts to speculate and make a profit.

Commodity prices are highly volatile and dependent on internal factors including cost of production and logistics as well as external factors such as global demand, inflation and currency exchange rates.

 

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