Commodities & raw materials defined
What do we mean by commodities or raw materials?
Well, it's very simple really. There are two kinds: hard and soft
Hard commodities come from the earth
Metals (e.g. copper, steel, aluminium, lead, zinc, cobalt)
Energy (e.g. electricity, gas, oil)
Other (e.g. ethylene, silicon, polymers)
Soft commodities we grow
Agricultural grains, food & fibre (e.g. wheat, corn, oats, soybeans, milk, coffee, sugar)
Livestock & meat (which typically eat grains)
Other (e.g. palm oil, rubber, wool, paper)
WHAT THE DIFFERENCE BETWEEN COMMODITY AND RAW MATERIAL?
The term raw material refers to an unprocessed material, - i.e. a basic material that is used to produce finished products, energy, or intermediate materials for future finished products. Often the raw material is a commodity.
DIRECT OR INDIRECT?
Commodity price volatility is as much of an issue when dealing direct with a commodity market, as it is when a commodity market has an indirect influence (such as silicon in the manufacturing of windshields, or grain-feed in the production of chickens).
BUYING OR SELLING?
Managing your commodity price risk is as equally applicable when buying as it is when selling. If your company produces, trades, or consumes commodities, then your profit margins are vulnerable to fluctuating markets. That means you’ll benefit from help in navigating and managing the price risks you face.
Here’s an example: a breakfast cereal manufacturer is exposed to price risks from corn, cocoa and sugar to make the product, from paper and plastics for its packaging, from the energy used to power its factories, warehouses and offices, and from the fuel used in logistics.