Commodity markets involve the trading of raw materials and primary agricultural/energy products. The document discusses several aspects of commodity markets including what makes a commodity good for trading, how commodities are traded on exchanges, important international exchanges, and how the Chicago Board of Trade and National Commodity & Derivatives Exchange work. It also addresses the history and economic importance of commodity markets in India and how commodity and stock markets are interrelated and behave during economic crises.

1. Commodity market and
exchanges

2. • Any product that can be used for commerce or an article of
commerce which is traded on an authorized commodity exchange is
known as commodity
-one of the most volatile market to trade in
-the article should be moveable or value something which is brought or
sold
-forward contracts (regulation)Act defines goods as every kind of
moveable property other than actionable claims

3. • What makes a commodity good?
--a long standing value
--holds monetary valuable
--scarcity
• How are commodities traded?
--brought or sold on the condition of its value in the
future
--brought now at an agreed upon price in the hopes that the
same commodity will be worth more in the future
--buying at the going rate and selling at a higher rate

4. Commodity market
• Markets where raw or primary products are exchanged
• These raw commodities are traded on regulated commodity
exchanges
• Allows a global investor to make or lose money by predicting the rise
or fall of primary products
• Unlike stocks commodities do not cease to exist (unless it is
completely depleted )
• Use commodities contracts to hedge their based upon perspective

5. Types of commodities
• Base metal – non-ferrous complex and includes metal-copper,
aluminum, lead ,nickel and zinc and ferrous metals steel ,carbon etc
precious metal – gold etc.
• Energy resources can be divided into two major groups –renewable
and nonrenewable. We get most of our energy from nonrenewable
sources like crude oil, natural gas and coal
• Agricultural commodity market –most commodity market across the
world trade in agricultural products and other raw materials (like
wheat ,barley , sugar, maize , cotton etc) and contracts based on
them like spot prices ,forwards , futures ,and options on future

6. Important international commodity exchanges
• Chicago Board of Exchange (CBOT)
• Chicago Mercantile Exchange (CME)
• London Metal Exchange (LME)
• New York Mercantile Exchange(NYMEX)
• Tokyo Commodity Exchange(TOCOM)
• Dailan Commodity Exchange(DCE)

7. How Chicago board of trade works?
• Formed in 19th century to help the farmers and commodity consumers to manage risks by
removing price uncertainty
• As one of the main derivative exchanges in the world, the CBOT serves important
purposes for wide variety of participants:
• Investors and portfolio managers
• Non-financial companies
• Hedge funds
• Government entities
THE PIT
The Pit is the physical trading platform where CBOT traders conduct transactions using the
open outcry method of trading
ELECTRONIC TRADING
With simple front-end and network connectivity requirements, the CME Globex trading
system allows traders from across the globe to access thousands of futures and options
contracts on a virtually 24-hour basis
Trading is executed amongst the CME Group merged members (CME, CBOT, NYME).
Clearing House Mechanism
By enforcing margin requirements and the mark-to-market of daily profits and losses, the
exchange significantly reduces the credit and default risk of the counterparties in a
transaction. Along with the standardization of contracts, this clearinghouse function
enhances market efficiency and liquidity while minimizing its risks.

8. Economic importance of commodity market
• Price of petroleum products are determined by NYMEX future
• Price of gold determined by COMEX futures
• Prices of copper ,nickel etc determined by LME
• Prices of coffee beans influenced by LIFFE and ICE futures
• Prices of rubber influenced by TOKOM
• Price of agriculture commodities determined by COBOT,chicago

9. Indian commodity exchanges
• Multi-commodity exchange of India(MCX)
• National commodity and derivative exchange limited(NCDEX)
• National multi-commodity exchange of India (NMCE)
• Indian commodity exchange limited

10. How NCDEX works
• Objective
• -to create a world class commodity exchange platform for the participants
• -to bring transparency and best international practices
• -to provide nationwide reach and consistent offering
TRADING
• -fully automated screen based trading
• -order driven market
• -complete transparency on trading platform
• -timings are 10:00am to 4:00pm
• -contract specification from time to time
• -NCDEX trades commodity futures contracts having one month two month and
three month expiry cycles
CLEARING
-National securities clearing corporation limited
-settlement guarantee fund is maintained and managed by NCDEX
-Professional clearing members(PCMs) only are entitled to clear and settle contracts
through the clearing house
NCDEX SYSTEM SUPPORTS AN ORDER DRIVEN MARKET

12. History of MCX
• It was established in 2003 in Mumbai.
• It is India's largest commodity derivatives exchange and seventh largest in the world in term of
future contracts traded as of year ended 2016.
• In February 2012, MCX had come out with a public issue of 6,427,378 Equity Shares of Rs. 10 face
value in price band of Rs. 860 to Rs. 1032 per equity share to raise around $134 million. It was the
first ever IPO by an Indian exchange and made MCX India’s only publicly listed exchange.
• Initially Forward Markets Commission (FMC) used to take care of MCX but, In 2015 SEBI took its
incharge and now SEBI regulates it.
• Various commodities are traded in MCX, but the major ones, who concentrates for more than 80% of
its trading are Gold, Silver, Crude oil and Natural gas.
• In terms of contract traded, MCX has 1st position in Gold and Silver, 2nd in Natural gas and 3rd in Crude
oil in all over the world.

13. 0.00
200000000.00
400000000.00
600000000.00
800000000.00
1000000000.00
1200000000.00
1400000000.00
1600000000.00
2010 2011 2012 2013 2014 2015 2016 2017 2018
Total Value (Lacs)
0.00
50000000.00
100000000.00
150000000.00
200000000.00
250000000.00
2010 2011 2012 2013 2014 2015 2016 2017 2018
Quantity Traded (000's)
Total Quantity Traded from
2010-18
Total Value of Trade
The imposition of commodity transaction tax (CTT) in non-agricultural commodities in the year
2013 and the National Spot Exchange scam in the year 2014 had caused a sharp dip in trading
volumes in commodity futures in national exchanges in the country.

14. 1. Interdependency- Both markets are correlated to each other,
movement in one markets affects the prices in other market.
Q. How commodity markets affect stock market?
Increase in commodity prices Increase in Operational cost
Less profit in the next Quarter Influence the Investor’s decision
to invest in the company Change in company’s stock prices. And
Vice versa.
How Commodity Markets and Stock Markets behave during crisis?

15. COMMODITY PRICE TRENDS
• Commodity prices
trended upwards till
2008, then in 2008
there was decline in
commodity prices due
to global recession.
• From January to June
2017 the UNCTAD Non-
oil Nominal Commodity
Price Index decreased
by 6%
• In the second half of
2017, the UNCTAD
commodity price index
showed an upwards
trend - mainly driven by
minerals, ores and
metals
Data Source: UNCTAD

16. COMMODITY PRICES
Long Term Trends and Recent Developments
FROM 2002-2011 (COMMODITY SUPERCYCLE)
• Since the beginning of 2002, commodity prices have surged. The overall index of
commodity prices has more than doubled, driven by strong energy and metal prices.
• Prices of non energy commodities also rose by 11% annually in the same period.
• Energy prices rose by about 32% on average each year during 2002–2005 on significant
increases in oil and natural gas prices.
• Overall, Soaring prices can be traced to robust global demand and restraints on supply
stemming largely from chronic underinvestment in earlier years, particularly in energy
and metal sectors.
• Various reasons for the surge are urbanization i.e the number of rapidly growing
emerging economies led to increase in demand.

17. • Natural disaters like hurricane Katrina .
• Increased demand from China
• Stockpiling of precious metals.
This period marks the FINANCIALISATION OF COMMODITIES-
During this supercycle,financial sector took advantage of the situation
and commodity market went from being little to being a full fledged
asset class.

18. FROM 2011-2017
• Then from 2011 to 2017, commodity prices trended downwards . This change of pace is
largely attributed to China’s shift to less commodity-intensive growth. Yet while prices
declined overall in 2012, some commodity categories—energy, food, and precious
metals—continued their decade-long trend of price increases.
• After reaching the bottom of a five-year slump at the beginning of 2016, commodity prices
trended upward until early 2017.
• The UNCTAD non-oil nominal commodity price index reached 218.8 points in February
2017, constituting an increase of 20.4 per cent from its value in January 2016 of 181.8
points.
• The recovery of commodity prices in 2016 was mainly driven by supply constraints and
output uncertainties, which particularly affected metals and agricultural commodity
prices in 2016. El Niño-related adverse weather conditions caused output shortfalls for
agricultural commodities such as palm oil, rice and coffee. The supply of minerals, ores and
metals was limited by the constriction of nickel, copper and zinc mine production. After
supply conditions for several agricultural commodities and metals eased, the upward trend
in commodity prices appeared to have come to a halt in early 2017

19. Commodity prices and global business cycle
• Historically, fluctuations in commodity
prices have been highly associated with
the global business cycle .
• As the global economy enters into an
expansionary phase, inventories fall and a
further increase in demand pushes
commodity prices sharply higher.
• However, as commodity prices become
elevated—partly responsible for
heightened inflationary pressures lead to
slowing economic activity—additional
production comes on stream and helps
balance supply and demand. Once the
business cycle begins to ebb, demand for
primary commodities declines and prices
begin to reverse. Cyclical adjustments
could be steep if high prices in the
expansion phase lead to a glut in
inventory and supply.

20. Food and agricultural commodities
• Tropical beverages
showed the steepest
decrease losing 12.8 %
from January to December
2017
• Prices of vegetable
oilseeds and oils
decreased by 11.9
• Prices of food
commodities and
agricultural raw materials
dropped by 4.6% and
8.7%, respectively.
Data Source: UNCTAD

21. Food and Agricultural Commodities
• Prices of food and beverages have been on a long-term downward
trend owing to the increased agricultural productivity and
technological advances.
• The recent performance based on the steady food prices reflects
restored demand and supply balance which is based on both firm
demand and improved supply management .
• For some of the important food commodities such as rice, soybeans,
meat, fruits, and vegetables, Asian demand has been particularly
high.

22. Crude Oil
• Crude oil prices have been
characterized by a high
degree of variability in the
past decade. In January
2007–May 2017, the
average spot price of Brent
crude oil (hereafter
referred to as the oil price)
fluctuated between $133.9
per barrel and $30.8 per
barrel.
• From June 2014 the price
of crude oil the price
dropped by 56.7 per cent.
The price of oil has, overall,
remained at depressed
levels since then.

23. Reason for the fall in crude oil price since 2014
FROM 2000-2008
Oil prices have been one of the most watched trends in economics during the 21st
century. From 2000 to 2008, the price of oil saw an unprecedented spike, going from
under $25 per barrel to almost $150 per barrel. Rapidly increasing demand
in emerging economies such as China and India and production cuts by the OPEC
in the Middle East drove the price of oil to its record heights.
2008-2014
A deep global recession throttled demand for energy in 2008 and sent oil prices
into a precipitous free fall. But then as economic recovery picked up so did the
demand for crude oil and hence the prices.
SINCE 2014
The main driver of the price collapse in late 2014 was an oversupply in the market
that had its roots in the massive increase of shale oil production in North America,
increasing production in other producers not members of the OPEC and a
slowdown in crude oil demand growth.

24. Coal
• Coal is primary fuel for electricity generation at global level:
– responsible for 45% of energy-related carbon emissions
– however, share of coal in the power generation is on a downward
trajectory and expected to drop from 41% in 2014 to 36% in 2021
• Coal price fluctuation around a downward trend from Jan $88 per metric
ton to $56 per metric ton in June 2016.
• Tight supply (strikes in Australia & bad weather in Indonesia) & high
demand in China contributed to price increase
• In 2018, price decline resulting from ample supply capacity
• Overall, a downward movement of the coal price seems likely
• Further price reduction to $ 80 due to production restriction in China.
Data Source: UNCTAD

25. • In five years, the UNCTAD minerals, ores
and metals price index fell from 418 points
peak to 178 points corresponding to a loss
of 57.3%.
• The prices of iron ores is strongly driven by
consumption in China, as the country
imports more than 2/3 of total seaborne
iron ore.
• The growth in steel production in China
slowed in 2014 and turned negative in
2015 and therefore the imported iron ore
lost its value.
Minerals, ores and Metals
Data Source: UNCTAD

26. Gold
• In Jan-Jul 2016, gold
prices increased by
21.9%. In the same period
the price of silver also
increased by 41.7%.
• Macroeconomic
uncertainty due to several
factors such as Britain and
Northern Ireland exit from
EU and lower interest rate
in major economies
seems to have simulated
investment in gold and
thereby strengthening the
price of gold in such
period.
Data Source: UNCTAD

27. Commodity prices are closely related to per capita
growth in developing countries
Data Source: World Bank and UNCTAD

28. History of Commodity Exchanges in Europe
• Industrial Revolution started in Europe and had a huge impact on
Commodity Market in Europe and around the world.
• Due to Industrialisation, goods became easier to acquire, process and
deliver .
• Amsterdam Stock Exchange(1602) is considered as first contemporary
stock exchange, originated as a market for commodities.
• Commodities traded- Grains, Spices, Whale-oil, Tulips.
• London Metal Exchange(1877) is one of the largest market in the
world for base and other metals.

29. Major Exchanges in Europe
Commodity Exchanges Commodities Traded Year of Incorporation
London Metal Exchange Metals- Aluminium,
Copper,Steel,Gold,Silver
1877
Intercontinental Exchange Energy – Crude and Refined Oil, Natural
Gas, Power
2000(Owns 12 regulated exchanges)
European Energy Exchange Energy – Power, Natural gas, CO2 2002
Belarusian Commodity Exchange Metals and Agriculture 2004
Saint-Petersburg International
Mercantile Exchange
Energy- Crude Oil, Natural Gas
Agriculture- Timber
2008

30. Impact of Financial Crisis on Gold
• Generally Investors use Gold
as Alternative Investment Vehicle.
• Against economic and political
backdrop, gold has witnessed a
decade long – climb.
• Gold acts as long-term safe haven
during times of crisis.

31. Financial Crisis and Crude Oil
• Crude Oil has seen tremendous
variation in last decade.
• Volatility was especially high in
the Financial crisis period.
• Manufacturing and
Consumption fell in Europe and
thus Global Prices also fell.
Average Annual Brent Crude Oil
Price ($)

32. China and Commodity markets
0
20
40
60
Oil
NaturalGas
Coal
Aluminum
Copper
Zinc
GDP
Population
PercentoftheWorld
Commodities 1997 2017
• In the last 20 years, China’s GDP
has grown from $961 bn in 2007
to $12,156 bn in 2017 .
• Huge Industrial Base has led
exponential growth in
Commodities demand.
• Unprecedented Construction
activity has fuelled such
demand.

33. China and Energy Commodities
0.0
0.4
0.8
1.2
1.6
0
1
2
3
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Per capita
Per $1,000 (RHS)
• Industrial prone policies after 1979
led to tremendous growth in demand
of all energy commodities especially
Coal.
• China is the 2nd largest consumer of
Oil and it imports half of its needs.
0.0
0.4
0.8
1.2
1.6
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Oil Gas Coal

34. China and Base Metals
0
1
2
3
4
5
6
0
10
20
30
40
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Per capita
Per $1,000 (RHS)
• Huge Industrial Base made
China highest consumer of
Metals.
• There has been structural
change in China’s growth
strategy- From Quantity to
Quality.
• China is transitioning from
Investment-led Economy to
Consumption-led Economy.1
2
3
4
5
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Aluminum Copper
Zinc

35. India and Commodity Markets
• India’s GDP has increased from
$0.41 lakh crore 1997 to $2.6
lakh crore in 2017.
• Manufacturing Sector accounts
for less than 30% of India’s
entire GDP.
• Demand for Oil and Coal has
increased substantially.0
5
10
15
20
Oil
NaturalGas
Coal
Aluminum
Copper
Zinc
GDP
Population
1997 2017

36. India and Energy Commodities
• Oil – India 3rd largest consumer
of Oil.
• OPEC forecasts 140 % increase
in India’s needs by 2040.
• Coal – Largest consumers of coal
in India are Electricity
Generation Corporations.
• India’s Energy Consumption has
increased multifold in last 2
decades.

37. India and Metals
• Base Metals
• Contrary to China, India isn’t
dependent on its Manufacturing
sector for GDP growth.
• Thus , growth in demand for
Base Metals has seen gradual
increase and not exponential
increase.
• Precious Metals
• India is the 2nd largest consumer
of Gold.
• Gold (alongwith Real Estate)
accounts for more than 90% of
Indian Household Investments.
• India’s share in silver demand-
14.7%(2008) to 39.2 % (2017).

38. Outlook of Middle Eastern countries Commodity
Exchanges
• Why did they need commodity exchanges?
• Due to the pressure of excess supply of Crude oil production in these
countries and lack of a major platform for trading Crude oil.
• DME( Dubai mercantile exchange) was the first comm exchange in
OPEC countries and the leading comm exchange at the moment.
• DME acquired DGCX( Dubai gold and comm exchange) in 2005 and
IME( Iranian mercantile exchange) in 2008.
• DME was the first comm exchange that added Energy products to its
standard set of commodity offerings in this region.
• One of its major contribution was DME Oman.

39. • Confidence of global players
• Setup of a new office
• Liquid Nature

40. Global commodity market
forecast

41. • Commodity market outlook is published four times a year in January
,april,july,october(UNCTAD)
• The report gives detailed market analysis for most primary
commodities including energy, metal , agriculture and fertilizers

42. • Overall, the share in global consumption of non food
consumption of non food commodities ,manufactures and
services would increase from 87% in 2018 to 91% 2030
• In Africa food prices are estimated to fall significantly due to
production growth through intensification and expansion while
prices for processed food will rise .
• In south Asia ,strong demand growth is projected to drive up food
prices in spite of productivity gains
• In east Asia similar forecast is expected due to demand pressure
from china
• In north America prices of both primary and processed food could
increase fuelled by economic growth
• Oil and gas service market growing at a CAGR of 2.6% from 2017
to 2024
• Oil price will average 61$ a barrel in 2019 and 62$ per barrel in
2020

43. Crude oil
• EIA has forecasted that average price of barrel of bend crude oil will
rise to 81.73$/b by 2025
• By 2030 world demand will drive prices to 92.98$/b
• By 2040 ,prices will be 105.16$/b and 107.94$/ by 2050

44. Energy sector
• Of the fossil fuels natural gas have the highest production
growth
• Renewable Energy demand is set to grow by more than 25%
to 40 % over by 2040 requiring more than 2$trillion a year of
investment in new energy supply
-- From a price perspective, onshore wind has become
the world’s lowest-cost energy source for power generation,
with an unsubsidized LCOE range of US$30–60 per megawatt
hour (MWh), which falls below the range of the cheapest
fossil fuel, natural gas (US$42–78 per MWh).2
• Higher electrification would lead to a peak in oil demand by
2030
• By 2050, electricity will account for a quarter of all energy
demand, compared with 18 percent now.

45. Gold
• ANZ forecast gold at 2400$ an ounce by 2030 price could rise more
than 300$
• Majority of the forecast say gold price could rise another 6.7% by
1350$
• Reasons:
• --inflation stands at 1.7%,its second highest level in the last five year
• --Uncertainty due to speculative trading
• --fed interest rate hike have been followed by climbing gold prices

46. Indian scenario
• 30% of total global growth in energy consumptions
• Coal consumptions increase resulting in24% growth of coal powered
electricity since india still is much more dependent on non renewble
other than renewble resources
• OPEC forecast as 150% increase by 2040
• Share of global consumption to 9% from 4%

47. Appendix

48. Some price forecast
from2014-2030
• food is forecasted to see a price rise from 1280$mt in 2014
to 1400$mt
• Grains is forecasted to see a price rise from 146$mt to 200
$mt
• Raw material is forecasted to see a price rise from 84.9
$cum to 85.8$cum
• Fertilizers is forecasted to see a price decrease from 468$/mt
to 450$/mt
• Metals and minerals is forecasted to see a price increase
from 1867$mt to 2200$mt