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Most Traded Commodities

Top 10 Most Traded Commodities in 2021

Historically, commodity trading was prevalent well before other financial instruments entered the market. For decades, even centuries, trading in agricultural products was conducted as producers sold products to buyers. The primary purpose for commodity trading was to sell and buy the product – rather than gain from trading activities like speculating price movements, as much of the trading in the current day is. Over time, the scope of commodity trading has expanded to include metals and energy commodities, in addition to many others. In the present day, the digitalization of the marketplace has dramatically improved liquidity as more participants enter the market.

This article will explain what a commodity is and what the most traded commodities in the world are in 2021.

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What is a Commodity?

We commonly define a commodity as a physical asset that has uses in the production of other goods. The asset must be fungible in nature to be classified as a commodity, a. This means that it should be interchangeable. For example, iron is considered a commodity because it does not matter where it has been mined. The grade plays a part, but in broader terms, iron in China is not unique. It’s generally interchangeable with iron mined anywhere. The metal is a basis for the production of other products.

Why Should you Trade Commodities?

Commodity trading has several benefits depending on the market participant. It provides a marketplace to sellers and ensures an efficient way for price discovery. It also enables producers and buyers to hedge the price of a commodity by locking in a price at a future date. This protects these players from market volatility and helps them to focus on their core businesses.

Commodity trading also offers a host of unique propositions to traders that other financial products may not exhibit. Traders can use commodity trading to enhance their returns when the capital markets (equity and debt) are underperforming. In many cases, the price of commodities negatively correlates to traditional markets. Trading also enables one to take a leverage position. This means that the commodities market offers derivatives that can amplify the returns by deploying a fraction of the capital required. This is not the case when someone physically buys and sells the commodity in the cash market.

Commodity prices also tend to be very volatile, which makes them an appropriate asset to trade. Moreover, buying a physical commodity would lead to complications like finding a place to store the asset. Instead, gaining exposure through trading accounts is a more efficient way.

Top 10 Most Traded Commodities in 2021

There was a time when agricultural products dominated the commodity market.  As the production of other goods became more prevalent in the economy, the importance of metals and energy rose. The top 10 most traded commodities have been highlighted in the table below:

Commodity NameMajor Exchanges
Brent Crude OilICE
SteelShanghai Futures Exchange
and London Metal Exchange
West Texas Intermediate
(WTI) Crude Oil

Crude oil takes the top spot, while metals feature the most in the list of top 10 commodities. Soybeans and corn are the only two agricultural items featured in the list.

Agricultural Commodities

This includes items that primarily serve as a source of food and, in some instances, fuel. Agricultural commodities formed the most important segment in this market, but their dominance has dwindled over the years. They are also tagged as soft commodities since food items tend to have an expiry date associated with them.

1. Coffee

Coffee is one of the most traded agricultural commodities, and it also happens to be one of the oldest. The popularity of coffee as a beverage across the globe also contributes to driving the demand. Brazil is the leading supplier of the product and accounts for almost a third of the global production. Harvests also have a tendency to affect coffee prices. Agriculture, in turn, is dependent on climate conditions. Other major countries involved in the production of coffee are Vietnam and Colombia.

2. Corn

One of the most popular agricultural crops, corn, can be used in multiple forms. It is also used as a biofuel. Similar to coffee, weather patterns have a major impact on the yield of the commodity. The US tops the list of corn-producing countries, followed by China and Brazil.

3. Soy Beans

As another versatile crop, soybean has multiple applications, which is why the crop’s popularity has been high in multiple countries. It acts as a rich source of protein and is consumed as tofu, soy milk, and soybean oil. It is also a popular animal feed. The demand and price for soybeans depend on the price of meat since the crop acts as an alternative to it. Like corn, soybeans are also used as a biofuel. Major countries producing the crop are the US, Brazil, Argentina, and China.

Precious and Industrial Metals

The industrialization of the economy brought about the rise of precious and industrial metals in the commodities market. As the mining process became more technologically advanced, the output of important metals also increased. The commodity exchange also played a vital role in shaping the demand by giving access to a wide range of metals.

1. Gold

Gold is one of the most popular metals in the exchange. Initially, households used to keep gold as a precious metal or as jewelry. It is the go-to asset when the financial markets are in turmoil owing to its safe-haven status. This was also something we saw at the onset of the pandemic. Gold prices remained resilient as capital markets across the globe faced immense pressure. Of late, gold has multiple industrial applications due to its inert property and the ability to conduct electricity. China is the leading producer of gold, with the other major economies mining this precious metal being Russia, Australia, and the US. While assessing the demand for gold, one can consider it a financial asset. Its price is mainly determined by the willingness of market participants to invest in the commodity.

2. Silver

Silver is the second most traded precious metal. It has several properties similar to gold that make it an appropriate metal for industrial use. Industrial activity has more influence on the price of silver since it sees more widespread use than gold. This makes the price volatile when the economy isn’t doing well. Investors, therefore, prefer gold as an alternative to other financial assets. Mexico, Peru, and China are the top three silver-producing countries in the world.

3. Iron Ore

Iron is abundantly available and has countless uses in many industries. It is also a critical component in the production of steel. The price of iron has been relatively stable, and industrial activity is the primary determinant of price in the commodity market. The introduction of tariffs can also play a crucial role in shaping the future price of the commodity. The world’s top iron ore producing countries are Australia, Brazil, China, and India.

4. Steel

Iron and carbon are the primary constituents of steel. The other elements in the alloy include chromium, nickel, tungsten, and manganese. The composition of the constituents depends on the application. Steel is a commonly used alloy in industries like infrastructure and manufacturing. It is light, strong, and low-cost. Steel prices are highly correlated with economic activity, dropping sharply when the economic forecasts aren’t favorable. The pandemic had a tremendous impact on steel prices as lockdown measures led to negative GDP growth in most economies. China is the leading producer of steel, and the production output in the country determines the global supply of steel. 

Energy Commodities

The demand for energy products is the reason why commodities like crude oil have a huge trading volume. These commodities fuel the economy, and the price can be volatile, making it a good product for trading.

1. Crude Oil

Crude oil is the commodity with the highest trading volume. It is used for the extraction of petrol, diesel, and petrochemicals. Brent oil and West Texas Intermediate (WTI) are the two most traded types of crude oil. The price of crude can fluctuate according to the level of industrial activity. This was apparent when the WTI traded below $0 due to low demand for the product. The supply side also has a major impact on the price of crude as nations producing this commodity can affect supply and alter the price of the commodity. Conflicts in the Middle East and production cuts by OPEC countries have significantly impacted the price of crude oil in the past.

2.   Natural Gas

The commodity is considered a replacement to crude oil and is considered a clean energy source due to lower carbon emissions. The popularity of natural gas rose once the storage and transportation of the commodity became possible. Industrial usage of natural gas is also common these days. Households also use it for heating and operating various appliances. The weather pattern drives the price for natural gas as colder spells increase the demand for heating power. Lower crude price tends to drive the demand away from natural gas. The largest producer of natural gas is the US, followed by Russia.

3.   Brent Oil

Brent oil is one of the versions of crude oil. The oil is drilled from the North Sea and has low sulfur content and low density, making it easy to refine. The price of Brent oil, like any other type of crude oil, is highly dependent on economic activity. The price of Brent also depends on the price of natural gas. If the price of natural gas increases, the demand for Brent rises as well, which can drive the price up.

The range of volatility exhibited across different commodities is very high, giving investors more opportunities to trade. The price of commodities is also susceptible to economic conditions, which is another opportunity for traders to exploit. The number of commodities available to trade is many, so traders can select the instrument of their choice.

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