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What are the different key factors that affects commodity market prices?

Author: Priya Agrawal
by Priya Agrawal
Posted: Jul 05, 2017

Commodity market is a well diversified market and has two exchange namely MCX and NCDEX. The major commodities which traded here are agricultural commodities, base metals, precious metals, oils and gas. By keeping commodities as a part of portfolio traders try to manage risk of overall portfolio in an efficient manner. Financial advisors suggested mcx tips are also used by traders while trading in this market for earning profitable returns.

Commodities are highly price volatile and this is one of the reason traders fears to trade in this market. Some key factors which affects commodity market prices are discussed below :

1. Storage and transportation

Every commodity has a physical form and therefore it is required to store them in an appropriate way and also while distributing commodities a transportation cost is involved. As they are not financial product, storage and transportation cost does not have large impact on market prices. This factor does not affect price of all commodities in a same manner it depends on the type of commodity. Like storage cost of gold is low as it has longer durability.

2. Weather and geographical conditions

Changes in price due to weather is mostly seen in commodities which are of perishable nature like wheat, corn, cardamom, jeera, rice and more. The climatic conditions of the area where these commodities are produced affects the final output and its prices as well. Also commodities around the whole world are traded in Indian commodity market. Any natural calamity or disaster affects the price of commodity.

3. Economic and political condition

Economic and political conditions prevailing in the country also affects the prices in commodity market. At the time of Gulf war in Iraq, highest price fluctuation in crude oil was witnessed. A weak economic condition lowers the purchasing power of consumers which leads to less demand and fall in price. Changes of government policies also affects the prices here. For example if government decreases the import duty on oils, it will show similar decrease in its price as well.

4. Demand and supply

This factor has major impact on changes in prices of different commodities. The role of demand in supply plays same role in stock and commodity market. The more demand leads to increase in price of a particular commodity and vice versa. Demand of a commodity depends on factors like season, domestic and global conditions.On different time periods, demand and supply of commodities are different.

Not all commodities have same impact of these factors on its price. Demand for natural gas is more in winters as compared to other seasons also storage and transportation cost is high with it. So factors like these will affect more this particular commodity then others. Agricultural commodities prices are more affected by supply than demand unlike natural gas.Traders should understand the nature of commodity in which they trade to earn well. Services like mcx market tips, currency tips and more can also be referred while trading in different segments for earning profitable returns. There are different financial advisory services providers who offers such services to traders and investors.

About the Author

I am a financial analyst. I always like to read and explore more about market.

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Author: Priya Agrawal

Priya Agrawal


Member since: Jun 09, 2016
Published articles: 75

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