Etymology

The word commodity came into use in English in the 15th century, from the French
commodit, "amenity,2000s commodities boom
From Wikipedia, the free encyclopedia
The 2000s commodities boom or the commodities super cycle[1] was the rise, and f
all, of many physical commodity prices (such as those of food stuffs, oil, metal
s, chemicals, fuels and the like) which occurred during the first two decades of
the 2000s (2000 2014),[2] following the Great Commodities Depression of the 1980s
and 1990s. The boom was largely due to the rising demand from emerging markets
such as the BRIC countries, particularly China during the period from 1992 to 20
13,[2] as well as the result of concerns over long-term supply availability.[cit
ation needed] There was a sharp down-turn in prices during 2008 and early 2009 a
s a result of the credit crunch and sovereign debt crisis, but prices began to r
ise as demand recovered from late 2009 to mid-2010.[citation needed] Oil began t
o slip downwards after mid-2010, but peaked at $101.80 on 30 and 31 January 2011
, as the Egyptian political crisis and rioting broke out, leading to concerns ov
er both the safe use of the Suez Canal and overall security in Arabia itself. On
3 March, Libya's National Oil Corp said that output had halved due to the depar
ture of foreign workers. As this happened, Brent Crude surged to a new high of a
bove $116.00 a barrel as supply disruptions and potential for more unrest in the
Middle East and North Africa continued to worry investors.[3] Thus the price of
oil kept rising into the 2010s. The commodities super-cycle peaked in 2011,[not
es 1] "driven by a combination of strong demand from emerging nations and low su
pply growth."[1][notes 2] Prior to 2002, only 5 to 10 per cent of trading in the
commodities market was attributable to investors.[1] Since 2002 "30 per cent of
trading is attributable to investors in the commodities market" which "has caus
ed higher price volatility."[1][notes 3]
The 2000s commodities boom is comparable to the commodity supercycles which acco
mpanied post World War II economic expansion and the Second Industrial Revolution
in the second half of the 19th century and early 20th century.[2]
Contents
1 Background of depressed prices
2 Boom
2.1 Food
2.1.1 Corn, wheat, rice, cocoa and Soya beans
2.2 Paper
2.2.1 Recycled paper
2.3 Fuel
2.3.1 Coal
2.3.2 Oil
2.3.3 Uranium
2.4 Precious metals
2.4.1 Gold
2.4.2 Silver
2.4.3 Platinum
2.4.4 Rhodium
2.4.5 Palladium
2.4.6 Rhenium
2.5 Other Industrial Metals
2.5.1 Aluminium
2.5.2 Nickel
2.5.3 Copper
2.5.4 Iron
2.5.5 Lead
2.5.6 Zinc
 2.5.7 Neodymium
2.5.8 Other metals
2.6 Chemicals
2.6.1 Sulphuric acid
2.7 Non metals
2.7.1 Chlorine
3 The economic fallout and aftermath
3.1 The 2008 price glitch
3.2 Mine closures
3.3 The 34th G8 summit
4 Opinions on the 2007 2008 commodities bubble and its aftermath
5 Synoptic chart on 1990 2010 prices
6 See also
7 Notes
8 References
9 Further reading
10 External links
Background of depressed prices
The prices of raw materials were depressed and declining from, roughly, 1982 unt
il 1998. From the mid-1980s to September 2003, the inflation-adjusted price[cita
tion needed] of a barrel of crude oil on NYMEX was generally under $25/barrel. S
ince 1968 the price of gold has ranged widely, from a high of $850/oz ($27,300/k
g) on 21 January 1980, to a low of $252.90/oz ($8,131/kg) on 21 June 1999 (Londo
n Gold Fixing).[4]
The analysis of this period is based on the work of Robert Solow and is rooted i
n macroeconomic theories of trade including the Mundell Fleming model.[5] One opin
ion stated that
"The volatility and interest rates found its way into commodity inputs and a
ll sectors of the world economy."[6]
Hence, in the case of an economic crisis commodities prices follow the trends in
exchange rate (coupled) and its prices decrease in case there are downward tren
ds of diminishing money supply.[5]
Foreign exchange impacts commodities prices and so does money supply: the advent
of a crisis will pull commodities prices down.[5]
Boom
A Neodymium magnet on a bracket from a hard drive.
A commodity price bubble, known as the 2000s commodities boom, was created follo
wing the collapse of the mid-2000s housing bubble. Commodities were seen as a sa
fe bet after the bubble economy surrounding housing prices had gone from boom to
bust in several western nations, including the UK, USA, Ireland, Greece and Spa
in.[citation needed] Advisers claimed that commodity prices could be predicted b
etter than stocks, since they are traded for actual usage and the price is based
on supply and demand, while stocks are bought for speculation and news immediat
ely influence prices. Still commodity prices have fluctuated outside predictions
.
The renewed interest in coal by China's and Taiwan's energy companies and the ri
se of alternative power sources like wind farms helped modify coal prices over t
he 2000s.[citation needed]
Chlorine price steadily increased throughout 2007 and early 2008 as demand for P
VC and some metals like copper, neodymium and tantalum rose due to the increased
growth of the BRIC countries' demand for electrical goods. Russia increased pro
duction, but the US offset this with production cuts in the late 1990s and mid-2
000s.[citation needed]
Phosphorus, rhodium, molybdenum, manganese, vanadium and palladium are used in h
igh grade steels, oil based lubricants, automotive catalytic converters, chemica
l plants' catalysts, electronics, TV screens and in radio isotopes.[7] Demand fo
r these metals appeared to be increasing as computers and mobile phones became m
ore popular in the mid to late 2000s. Thulium is used in x-ray tubes and neodymi
um is used in high strength/high grade magnets.[citation needed]
Molybdenum, rhodium, neodymium and palladium are relatively scarce metals, while
manganese and vanadium are, like phosphorus and sulfur, fairly abundant for min
or minerals. The major metals such as iron, lead and tin are commonplace.[citati
on needed]
Recycling of the aluminum, ferrous metals, copper fractions, gold, palladium and
platinum in mobile phones and computers had got under way by the mid-2000s.[8][
9][10][11][12][13] Battery recycling has helped bring down both the nickel and c
admium prices.
Sulfuric acid (an important chemical commodity used in processes such as steel p
rocessing, copper production and bioethanol production) increased in price 3.5-f
old in less than 1 year while producers of sodium hydroxide have declared force
majeure due to flooding, precipitating similarly steep price increases.[14][15]
Food
Corn, wheat, rice, cocoa and Soya beans
The growth in food production has been greater than population growth.
Both a rising global population and a sharp decline in food crop production in f
avour of a sharp rise in biofuel crops helped cause a sharp rise in basic food s
tock prices.[16] Ethiopia also saw a drought threaten its already frail farm lan
ds in 2007.[17] Cocoa was also affected by a bad crop in 2008, due to disease an
d unusually heavy rain in parts of West Africa.[citation needed]
Rising demand in both India and Egypt helped to ramp up demand for American whea
t during the bull market during August 2007.[18] Discounted wheat sold at about 1
1 15/t. August 2007, with non discounted wheat at slightly higher price. The Novemb
er 2007 wheat futures market was trading at nearly 165/t, with November 2008 cont
racts at 128.50.[18] The market became rather bearish as non-futures prices froze
and stagnated in December 2007.[19] The price of wheat reached record highs aft
er Kazakhstan began to limit supplies being sold overseas in early 2008, but had
slowed down by late 2008. Food riots hit Egypt on 12 April 2008, as national br
ead prices rose rapidly in March and April 2008.[20]
In late April 2008 rice prices hit 24 cents (U.S.) per U.S. pound, more than dou
bling the price in just seven months. The price of wheat had risen from an alrea
dy high 88 per tonne to 91 from January to March 2010, due to the bullish market a
nd currency concerns.[21] This led to food riots in places such as Haiti, Indone
sia, Cte d'Ivoire, Uzbekistan, Egypt[22][23] and Ethiopia.[17] The market remains
fairly bullish.[citation needed]
On 31 July, leading economists predicted that food prices, especially wheat woul
d rise in Chad as Russia ended exports due to a domestic drought destroying thei
r wheat and barley harvests.[24] By 3 August, wheat prices stood at $7.11 per bu
shel[25] due to the Russian export ban.
Paper
Recycled paper
The price of recycled paper has varied greatly over the last 30 or so years.[26]
[27] [28][29] [30][31][32] The German price of 100/49 per tonne was typical for th
e year 2003[29] and it steadily rose over the years. By September 2008 saw Ameri
can price of $235 per ton had fallen to just $120 per ton,[26] and in January 20
09, the UK's fell from about 70.00 per ton to only 10.00 per ton in six weeks.[27]
[30] The slump was probably due to the economic down turn in East Asia causing t
he market for waste paper drying up in China.[30] 2010 prices averaged $120.32 a
t the start of the year, but saw a rapid rise in global prices in May 2010,[28]
reaching $217.11 per ton in the USA in June 2010 as China's paper market began t
o reopen.[28]
Fuel
Coal
Coal rail cars
Coal prices rose to A$73 per tonne in September[33] and then up to A$84 per tonn
e in the October 2009[33] due to renewed interest by China's and Taiwan's energy
companies.
Oil
Medium term crude oil prices since May 1987.
During 2003, the price rose above $30, reached $60 by 11 August 2005, and peaked
at $147.30 in July 2008.[34] Commentators attributed the heavy price increases
to many factors, including reports from the United States Department of Energy a
nd others showing a decline in petroleum reserves,[35] worries over peak oil,[36
] Middle East tension, and oil price speculation.[37]
For a time, geo-political events and natural disasters indirectly related to the
global oil market had strong short-term effects on oil prices, such as North Ko
rean missile tests,[38] the 2006 conflict between Israel and Lebanon,[39] worrie
s over Iranian nuclear plans in 2006,[40] Hurricane Katrina,[41][42] and various
other factors.[43] By 2008, such pressures appeared to have an insignificant im
pact on oil prices given the onset of the global recession.[44] The recession ca
used demand for energy to shrink in late 2008, with oil prices falling from the
July 2008 high of $147 to a December 2008 low of $32.[45] Oil prices stabilized
by October 2009 and established a trading range between $60 and $80.[45]
The price of oil nearly tripled from $50 to $147 from early 2007 to 2008, before
plunging as the financial crisis began to take hold in late 2008.[46] Experts d
ebate the causes, which include the flow of money from housing and other investm
ents into commodities to speculation and monetary policy [47] or the increasing
feeling of raw materials scarcity in a fast-growing world economy and thus posit
ions taken on those markets, such as Chinese increasing presence in Africa. An i
ncrease in oil prices tends to divert a larger share of consumer spending into g
asoline, which creates downward pressure on economic growth in oil importing cou
ntries, as wealth flows to oil-producing states.[48]
In January 2008, oil prices surpassed $100 a barrel for the first time, the firs
t of many price milestones to be passed in the course of the year.[49] In July 2
008, oil peaked at $147.30[50] a barrel and a gallon of gasoline was more than $
4 across most of the US. The high of 2008 may have been part of broader pattern
of spiking instability in the price of oil over the preceding decade.[51] This p
attern of instability in oil price may be a product of peak oil. There is concer
n that if the economy was to improve, oil prices might return to pre-recession l
evels.[52]
In testimony before the Senate Committee on Commerce, Science, and Transportatio
n on 3 June 2008, former director of the CFTC Division of Trading & Markets (res
ponsible for enforcement) Michael Greenberger specifically named the Atlanta-bas
ed IntercontinentalExchange, founded by Goldman Sachs, Morgan Stanley and Britis
h Petroleum as playing a key role in the speculative run-up of oil futures price
s traded off the regulated futures exchanges in London and New York.[53]
The price of oil rose to $77 per barrel on 24 June as a cyclone begins to form i
n the south western Caribbean.[54] The price for July 2010 was about $84 $90 per b
arrel of crude oil.
Oil prices ended the year at $101.80, falling to $100.01 per barrel on 30 and 31
January 2011.[citation needed], then the Egyptian civil war broke out, as it th
eoretically put the use of Suez Canal at risk.[55] Making matters worse, a gas p
ipeline to Jordan was blown up by saboteurs in the Sinai Peninsula.
Uranium
Monthly uranium spot price in US$ per pound. The 2007 price peak is clearly visi
ble.[56]
Uranium traded at about $15 $20/kg since the late 1980s due to a 10-year secular b
ear market, with a 2001 low of just over $10/kg. The Uranium bubble of 2007 star
ted in 2005[57] and began to accelerate badly with the 2006 flooding of the Ciga
r Lake Mine in Saskatchewan.[58][59][60] Uranium prices peaked at roughly $300/k
g in mid-2007,[61] began to fall in mid-2008 and are now (end 2010) hovering abo
ut $100/kg.[62] The stock prices of many uranium mining and exploration companie
s rose sharply, only to fall later in this boom.[58]
There was also a brief resurgence of interest in nuclear power by the UK governm
ent between 2006 and 2008 due to the apparently insecure nature of Middle Easter
n oil and after the closure of several old and economically/environmentally unvi
able coal fired power stations at the time. This helped the uranium price to ral
ly at this date.
Precious metals
Gold
Gold price per troy ounce in USD since 1960, in nominal US$ and inflation adjust
ed in 2012 US$.
There was a sharp shift in the prices of gold and, to a lesser extent, both silv
er and platinum. Prices were at or near an all-time high in late 2010 due to peo
ple using the precious metals as a safe haven for their money as both the de fac
to value of cash and the stock market prices became more erratic in the late 200
0s.
The period from 1999 to 2001 marked the "Brown Bottom" after a 20-year secular b
ear market at $252.90 per troy ounce.[63] Prices increased rapidly from 1991, bu
t the 1980 high was not exceeded until 3 January 2008 when a new maximum of $865
.35 per troy ounce was set (a.m. London Gold Fixing).[64] Another record price w
as set on 17 March 2008 at $1,023.50/oz ($32,900/kg) (am. London Gold Fixing).[6
4] In the fall of 2009, gold markets experience renewed momentum upwards due to
increased demand and a weakening US dollar. On 2 December 2009, gold passed the
important barrier of US$1,200 per ounce to close at $1,215.[65] Gold further ral
lied hitting new highs in May 2010 after the European Union debt crisis prompted
further purchase of gold as a safe asset.[66][67][68]
Since April 2001, the gold price has more than tripled in value against the US d
ollar,[69] prompting speculation that the long secular bear market had ended and
a bull market has returned.[70] Gold's price finally stood at $1,350 per troy o
z on 1 July 2010.[71]
On 7 October 2010, it cost $1,364.60 per troy ounce,[72] by 7 December reached t
he all time nominal historic high of $1,429.05 per troy ounce.
Note that the analysis of log-linear oscillations in the gold price dynamics for
2003 2010 conducted in 2010 by Askar Akayev's research group allowed them to fore
cast the collapse in gold prices in June August 2011.[73] Note that the team had
already forecasted correctly convenience". Going further back, the French word
derives from the Latin commoditas, meaning "suitability, convenience, advantage"
. The Latin word commodus (from which English gets other words including commodi
ous and accommodate) meant variously "appropriate", "proper measure, time, or co
ndition", and "advantage, benefit".
Types of commodity
The term commodity is specifically used for an economic good or service when the
demand for it has no qualitative differentiation across a market.[1] In other w
ords, a commodity good or service has full or partial but substantial fungibilit
y; that is, the market treats its instances as equivalent or nearly so with no r
egard to who produced them. As the saying goes, "From the taste of wheat, it is
not possible to tell who produced it, a Russian serf, a French peasant or an Eng
lish capitalist."[2] Petroleum and copper are other examples of such commodities
,[3] their supply and demand being a part of one universal market. Items such as
stereo systems, on the other hand, have many aspects of product differentiation
, such as the brand, the user interface and the perceived quality. The demand fo
r one type of stereo may be much larger than demand for another.
In contrast, one of the characteristics of a commodity good is that its price is
determined as a function of its market as a whole. Well-established physical co
mmodities have actively traded spot and derivative markets. Generally, these are
basic resources and agricultural products such as iron ore, sugar, rice. Soft c
ommodities are goods that are grown, while hard commodities are ones that are ex
tracted through mining.
There is another important class of energy commodities which includes electricit
y, gas, coal and oil. Electricity has the particular characteristic that it is u
sually uneconomical to store; hence, electricity must be consumed as soon as it
is processed.
Commoditization
Commoditization occurs as a goods or services market loses differentiation acros
s its supply base, often by the diffusion of the intellectual capital necessary
to acquire or produce it efficiently. As such, goods that formerly carried premi
um margins for market participants have become commodities, such as generic phar
maceuticals and DRAM chips. An article in The New York Times cites multivitamin
supplements as an example of commoditization; a 50 mg tablet of calcium is of eq
ual value to a consumer no matter what company produces and markets it, and as s
uch, multivitamins are now sold in bulk and are available at any supermarket wit
h little brand differentiation.[4] Following this trend, nanomaterials are emerg
ing from carrying premium profit margins for market participants to a status of
commodification.[5]
There is a spectrum of commoditization, rather than a binary distinction of "com
modity versus differentiable product". Few products have complete undifferentiab
ility and hence fungibility; even electricity can be differentiated in the marke
t based on its method of generation (e.g., fossil fuel, wind, solar), in markets
where energy choice lets a buyer opt (and pay more) for renewable methods if de
sired. Many products' degree of commoditization depends on the buyer's mentality
and means. For example, milk, eggs, and notebook paper are not differentiated b
y many customers; for them, the product is fungible and lowest price is the main
decisive factor in the purchasing choice. Other customers take into considerati
on other factors besides price, such as environmental sustainability and animal
welfare. To these customers, distinctions such as "organic versus not" or "cage
free versus not" count toward differentiating brands of milk or eggs, and percen
tage of recycled content or Forest Stewardship Council certification count towar
d differentiating brands of notebook paper.
Global commodities trading company
This is a list of companies trading globally in commodities, descending by size
as of October 28, 2011.[6]
 Vitol
Glencore International AG
Trafigura
Cargill
Salam Investment
Archer Daniels Midland
Gunvor (company)
Mercuria Energy Group
Noble Group
Louis Dreyfus Group
Bunge Limited
Wilmar International
Olam International
Commodity trade
Main articles: Futures exchange and Commodity market
In the original and simplified sense, commodities were things of value, of unifo
rm quality, that were produced in large quantities by many different producers;
the items from each different producer were considered equivalent. On a commodit
y exchange, it is the underlying standard stated in the contract that defines th
e commodity, not any quality inherent in a specific producer's product.
Commodities exchanges include:
Bourse Africa (formerly GBOT)
Bursa Malaysia Derivatives (MDEX)
Chicago Board of Trade (CBOT)
Chicago Mercantile Exchange (CME)
Dalian Commodity Exchange (DCE)
Euronext.liffe (LIFFE)
Kansas City Board of Trade (KCBT)
London Metal Exchange (LME)
March Terme International de France (MATIF)
Multi Commodity Exchange (MCX)
National Commodity and Derivatives Exchange (NCDEX)
National Commodity Exchange Limited (NCEL)
New York Mercantile Exchange (NYMEX)
Mercantile Exchange Nepal Limited (MEX)
Markets for trading commodities can be very efficient, particularly if the divis
ion into pools matches demand segments. These markets will quickly respond to ch
anges in supply and demand to find an equilibrium price and quantity. In additio
n, investors can gain passive exposure to the commodity markets through a commod
ity price index.
Commodity as a new asset class for pension funds and SWFs
In order to further diversify their investments and mitigate the risks associate
d with inflationary debasement of currencies, an increasing number of pension fu
nds and sovereign wealth funds are allocating more capital to non-listed assets
such as a commodities and commodity-related infrastructure.[7]
Inventory data
The inventory of commodities, with low inventories typically leading to more vol
atile future prices and increasing the risk of a "stockout" (inventory exhaustio
n). According to economist theorists, companies receive a convenience yield by h
olding inventories of certain commodities. Data on inventories of commodities ar
e not available from one common source, although data is available from various
sources. Inventory data on 31 commodities was used in a 2006 study on the relati
onship between inventories and commodity futures risk premiums.[8]
Commodification of labor
See also: Labour is not a commodity
In classical political economy and especially in Karl Marx's critique of politic
al economy, a commodity is an object or a good or service ("product" or "activit
y"[9]) produced by human labour.[10] Objects are external to man.[11] However, s
ome objects attain "use value" to persons in this world, when they are found to
be "necessary, useful or pleasant in life,"[12] "Use value" makes an object "an
object of human wants,"[13] or is "a means of subsistence in the widest sense."[
14]
As society developed, people found that they could trade goods and services for
other goods and services. At this stage, these goods and services became "commod
ities." Commodities are defined as objects which are offered for sale or are "ex
changed in a market."[15] In the marketplace, where commodities are sold, "use v
alue" is not helpful in facilitating the sale of commodities. Accordingly, in ad
dition to having use value, commodities must have an "exchange value" a value that
could be expressed in the market.[16]
Prior to Marx, many economists debated as to what elements made up exchange valu
e. Adam Smith maintained that exchange value was made up of rent, profit, labour
and the costs of wear and tear on the instruments of husbandry.[17] David Ricar
do, a follower of Adam Smith, modified Smith's approach on this point by allegin
g that labour alone is the content of the exchange value of any good or service.
[18] While maintaining that all exchange value in commodities was derived direct
ly from the hands of the people that made the commodity, Ricardo noted that only
part of the exchange value of the commodity was paid to the worker who made the
commodity. The other part of the value of this particular commodity was labour
that was not paid to the worker unpaid labour. This unpaid labour was retained by
the owner of the means of production. In capitalist society, the capitalist owns
the means of production and therefore the unpaid labour is retained by the capi
talist as rent or as profit. The means of production means the site where the co
mmodity is made, the raw products that are used in the production and the instru
ments or machines that are used for the production of the commodity.
However, not all commodities are reproducible nor were all commodities originall
y intended to be sold in the market. These priced goods are also treated as comm
odities, e.g. human labour-power, works of art and natural resources ("earth its
elf is an instrument of labour"),[19] even though they may not be produced speci
fically for the market, or be non-reproducible goods.
Marx's analysis of the commodity is intended to help solve the problem of what e
stablishes the economic value of goods, using the labor theory of value. This pr
oblem was extensively debated by Adam Smith, David Ricardo[20] and Karl Rodbertu
s-Jagetzow among others.
All three of the above-mentioned economists rejected the theory that labour comp
osed 100% of the exchange value of any commodity. In varying degrees, these econ
omists turned to supply and demand to establish the price of commodities. Marx h
eld that the "price" and the "value" of a commodity were not synonymous. Price o
f any commodity would vary according to the imbalance of supply to demand at any
one period of time. The "value" of the same commodity would be consistent and w
ould reflect the amount of labour value used to produce that commodity.
Prior to Marx, economists noted that the problem with using the "quantity of lab
our" to establish the value of commodities was that the time spent by an unskill
ed worker would be longer than the time spent on the same commodity by a skilled
worker. Thus, under this analysis, the commodity produced by an unskilled worke
r would be more valuable than the same commodity produced by the skilled worker.
Marx pointed out, however, that in so