World Commodity Markets

We offer a detailed review of the activities of the product market. First of all, we will determine the key concept - “product market”. This is a difficult socio-economic category. Its essence can be revealed most fully if we consider it in different aspects of manifestation.

First of all, the commodity market is a sphere of commodity exchange. In addition, this is economic activity, as well as a system of various organizational and economic actions that are aimed at promoting a particular product from its producer to the consumer. These actions, for example, are associated with the development of the economic mechanism of production, as well as with the sale of goods, methods and forms of sale, a decision on sales, the formation of demand, advertising of goods, etc. The product market, therefore, is a sphere of commodity exchange, in which the relations of sale of various goods are manifested, and there is also a specific economic activity related to their implementation. Let's move on to the description of the elements that make up its composition.

The constituent elements of the commodity market

The following constituent elements include product markets:

• the price of the product;
• population demand;
• product offer.

A product offer is a mass of goods that is intended for sale. The production of goods in a particular country, import purchases and inventories are its main sources.

Equilibrium in the commodity market

This is a situation where the level of total costs is sufficient for the procurement made at maximum employment of product resources. Total spending is the savings and consumption of the population. The products manufactured depend on the investments of various organizations. Equilibrium in the commodity market is the optimum of the aspiration of the economy, extremely rarely achieved. Even if it occurs for a while, then prices, wages and the market interest rate immediately change. Then, following the decline in demand, an extremely insignificant and quick decline in production will occur. This stabilizes the situation.

Key performance indicators of the commodity market

Commodity markets in their activities are characterized by the following main indicators of their functioning.

1. Capacity. This is the maximum possible volume of sales of goods at this time, which may be at a given level of demand (solvent), retail prices and product supply.
2. The dynamics of the development of specific industry markets of a particular country, which together constitute a single commodity market of this state.
3. Also important degree of diversification. Diversification should be understood as the degree of coverage with different types of products (by price and assortment), taking into account solvent, ethnic and geographical characteristics of the population of a country.
4. Marketable product quality. By it is meant a set of inherent properties of a product. It should take into account the safety of consumption of goods, requirements for labeling, packaging, existing environmental standards, as well as the availability of after-sales services.
5. Another important indicator characterizing commodity markets is the competitiveness of certain goods. It should be understood as competitiveness of the products according to the current market requirements in a given period.

Classification of product markets by geographic and product lines

You can classify them according to different characteristics. For example, by geography. You can select in accordance with it the markets of individual regions.Of these, each can be represented as a subsystem of the markets of certain countries, as well as their groupings. The product aspect is not distinguished in this classification. These are, in essence, aggregate markets. They unite all individual markets.

However, there is another classification. In accordance with the signs of commodity and sectoral, it is possible to distinguish markets for semi-finished products and raw materials, finished products, and services. In the future, these groups can be broken down to the market level of a particular product. There are many examples. The market of industrial raw materials, in particular, includes the markets of chrome, manganese, iron ore, rolled products, steel, steel pipes, platinum, nickel, precious metals, chemicals, diamonds, chemical fibers, plastics, medicines, etc.

A special place that oil and petroleum products occupy in the market

A special place in the fuel market belongs to petroleum products and oil, as it is a commodity that is traded through the oil commodity exchange. Therefore, petroleum products can be attributed to the “joint” category of goods, that is, a particular product from this category cannot be obtained without producing others.

Participants in the international oil market

Of great importance for individual product markets are its participants, who perform certain functions. In the international oil market, for example, they are the following entities.

1. Oil companies engaged in the exploration, refining, production and sale of oil and various products of its processing. Many oil companies, in addition, trade in rights to oil products and oil: options, futures, exchange for real futures goods. This is, for example, a company such as Brish Petroleum Shell.
2. Independent trading companies. This, for example, Arcadia, Vitol, Mark Rich. They work in real and new types of markets.
3. Another participant is trading houses, banks, financial investment companies. They work in new markets. This is, for example, Morgan Stanley.
4. Collective and private investors specializing in new types of markets. They seek to profit by successfully investing in options and futures contracts for oil products and oil.

Characteristic features of global commodity markets

Talking about world commodity markets, it should be noted their mobility, greater variability in comparison with the sectors of the national economy. I must say that the global commodity market reacts more sensitively to new trends in demand and fluctuations in the economic environment. Accordingly, its borders are more mobile, elastic than the borders of the corresponding industry. The system of world markets is evolving at a faster pace than the industrial structure of production, if we consider it on a global scale.

Factors affecting the functioning of world markets

The following factors have a great influence on the functioning of various world markets:

• monopolization;
• regulation foreign trade by the state;
• monetary and financial factors.

Let's say a few words about the last of them. Today we are witnessing a sharp increase in the impact of monetary and financial factors on world commodity markets. It is especially amplified when floating exchange rates are in effect. It should be borne in mind that commodity and money market are interconnected. In some cases, significant changes in exchange rates give rise to a significant transformation of all international trade, as well as changes in the circulation of goods between individual countries.

Today, the increasing monopolization of the economy also has a great influence on the state of markets. Restrictions on commodity markets are increasing. So-called closed ones appear, a significant part of transactions in which has the nature of transfer transactions, may be concluded between a very limited number of parties.

The essence of monopoly

The word "monopoly" itself comes from the Greek term meaning "sole producer." This is the absolute predominance of the business entity in the economy. This situation gives him the right to single-handedly manage resources, as well as the opportunity to exert certain pressure on his competitors and consumers and receive a steady income.

Monopoly as a concept is associated with market structure which occurs when some manufacturer dominates it. In other words, interchangeable goods or a substitute for the product that he produces does not exist. This enables him to have a decisive influence on the general conditions of commodity circulation, as well as hinder access to other business entities that want to enter regional or global commodity markets. A small company can even be a monopolist.

Types of Monopoly

Monopolies can be divided into the following types.

1. Natural monopoly represents a state of the commodity market, the satisfaction of demand in which due to the technological features of this production is more effective in the absence of competition. Moreover, the goods produced by the subjects of this type of monopoly cannot be replaced by others in consumption. Because of this, the demand for them depends to a lesser extent on price changes than the demand for other types of goods. It can be attributed to the natural monopolies of pipelines, natural gas production, the electricity industry, etc.
2. Restriction of competition in commodity markets may also arise in the case of an authorized monopoly. It is protected by legal restrictions. That is, in this case, the dominant position is due to decisions of local or federal governing bodies and authorities. They are accepted in the interests of a region or state for a certain period under the influence of the economic situation prevailing in the market.
3. Temporary monopoly - these are cases when a business entity dominates due to the temporary absence of competitors. This happens when new products appear on the market. In this case, monopolistic activities in commodity markets competitors arise as the technology of its production.

Monopolization in modern markets

Today, markets are marked by a high degree of monopolization if international monopolies play a major role in them. They determine, in essence, the rules of the game. The market loses its flexibility under these conditions, as well as its inherent property of an automatic commodity price regulator. Therefore, the restriction of monopolistic activity in commodity markets in some cases can be extremely desirable. The transnationalization of monopolistic business significantly affects international trade, contributing to the emergence of new methods and forms, the development of a specific system of distribution channels.

Availability of intermediaries

An essential feature that the global commodity markets have is the presence of various intermediary firms and companies specializing in the import or export of certain goods, as well as the rather large influence they have on the markets. The process of monopolization, however, inevitably affects them. This leads to an increasing centralization of international and national distribution systems, the absorption of manufacturers, traditionally independent, as well as suppliers.