Four Types of Commodities You Should Know About

what are commodities


There are a lot of types of commodities but Coal is one of the main ones. It is mainly used to produce electricity, steel, and cement and it is divided into coke and carbon. Almost 38% of the world’s electricity and 71% of cement production comes from the use of coal, while its processing results in other secondary commodities such as alumina, agricultural fertilizers, and chemicals from carbon by-products. Refined carbon tar is used in the manufacture of chemicals such as creosote oil, naphthalene, phenol, and benzene. 

The gas of ammonia recovered from coke ovens is used to produce ammonia, nitric acid, and agricultural fertilizers. Thousands of different products have carbon or carbon by-products as ingredients: soap, aspirin, solvents, dyes, plastics, and fibers, such as rayon and nylon. It is estimated that coal reserves reach 1.1 trillion tonnes which will be available for at least 150 years, as opposed to oil or natural gas whose reserves are sufficient for use for up to 50 years.  Although the coal which is produced is usually consumed by the producing countries, the quantities traded around the world are enough to put it into “the major bulk commodities”.

The difference between carbon and other energy commodities is in its price stability and easier management. Factors affecting the coal trade are emerging economies mainly through the need for electricity and other forms of energy, and the prices of substitute products such as renewable energy sources. Even the various environmental measures and regulations that take place both nationally and globally affect the coal trade, as well as trade relations at the country level. A typical example is customs duties between countries, which slow down and disrupt trading. Finally, another factor that affects coal trading is its transport costs and especially the level of fares by exporters.

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The category of grains belongs to agricultural products and commodities. They belong to a separate category of study as the percentage they occupy in the world trade exceeds 9%. In particular, wheat is the third-largest cargo product in maritime trading. It accounts for about 9.50% of total dry bulk trade worldwide with about 430 million tonnes traded annually. About 74% are wheat and coarse grains, while about 110 million tonnes about 26% are soybeans. Raw grains refer to cereals other than wheat and rice, which are mainly used for animal feed and brewing.

The division of cereals into subcategories creates an even greater range both in the analysis of individual cereals and differentiation during their transport. It is one of the basic commodities characterized by seasonality, mainly in terms of harvest. The main uses of cereals are presented in animal feed, their processing for the production of products for consumption, raw material for the production of fuels, various oils and lubricants as well as for industrial uses.

Market cereals are divided into many categories:

  • Wheat
  • Corn
  • Soybeans
  • Rice
  • Coffee
  • Sugar
  • Cotton
  • Various oils, with palm oil and soybean oil, predominating

Fun fact

In terms of factors affecting the market for agricultural products and especially cereals, population and income are at the top of the factors. Population growth leads to increased food needs, thus increasing their demand. The demand for meat and livestock is directly linked to cereals as the latter is the staple food of farmed animals. Protection policies such as tariffs, as well as policies to strengthen the agricultural products sector by governments and organizations but also the different exchange rates, affect changes in supply and demand. The weather conditions prevailing in producer countries in turn affect the supply and the stocks stored in the producers’ warehouses, as well as the transport costs.

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Iron ore

Iron ore is any rock or mineral from which it is cost-effective to extract iron as a metal. It usually has a high content of iron oxides. About 98% of the world’s iron is used for steel production. Examples of these are magnetite, goethite, hematite, limonite, and iron. Steel plays an important role in determining iron ore prices. It is used in many sectors of the economy. But the construction and the automotive sector are the two largest consumers of it.

These industries are particularly sensitive to macroeconomic factors such as unemployment, interest rates, and GDP. When the economy thrives, more office buildings are needed, factories need more machinery and consumers buy more cars. Infrastructure plays another important role in steel demand. Essentially, the ‘health’ of the overall economy is a good indicator of steel demand which determines iron ore demand too. Steel scrap is a source of steel production that is competed with iron ore. Therefore, the cost and availability of scrap metal affect the demand for iron ore. The automotive industry is a major supplier of steel pipes. In recent years, the waste industry recycles more than 14 million tons of steel from vehicles, as well as other industries.

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Bauxite / Alumina

Bauxite is the main source of aluminum production in the world. The ore must first be chemically treated to produce alumina (aluminum oxide). The alumina is then melted using an electrolysis process to produce pure aluminum metal. Bauxite is commonly found in mineral oils found in various tropical and subtropical regions. The ore is obtained through wastewater extraction. Bauxite reserves are abundant in Africa, Oceania, and South America and are expected to last for centuries. More than 85% of the bauxite mined worldwide is converted to alumina for aluminum production. An additional 10% goes to non-metallic uses in various forms of specialty alumina, while the rest is used for production chemicals, abrasives, and refractories in the cement, steel, and gasoline industries.

The United States Geological Survey (USGS) reports that global bauxite production in 2018 was 300 million tons. Bauxite market trends are affected by both supply and demand. The demand for aluminum production contributes mainly to the bauxite market. Other factors influencing the market are the weather conditions in the producing countries and how much they affect the mining rates. With the increase of industrialization and urbanization, especially in India and China, and the use of aluminum in the automotive industry today. Plug-in hybrid electric systems and electric cars use 25 to 27% more aluminum than a typical car with an internal combustion engine. Producing countries’ policies greatly influence the bauxite market.

In 2014, the Indonesian government imposed a ban on bauxite exports. That was about encouraging private investment in alumina production. In 2016, Malaysia imposed a ban on bauxite mining due to uncontrolled environmental damage and illegal mining

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