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The purchasing decisions of bulk commodities are influenced by multiple complex factors, which not only determine the supply and demand relationship in the market, but also profoundly shape market trends. The following are the main factors that affect commodity purchases and their specific impact on market trends.
1. The supply-demand relationship is the core driving force of the commodity market.
On the supply side, factors such as policies of the producing country, natural disasters, and technological progress can all affect the supply of goods. For example, the production reduction agreement of oil producing countries will directly lead to a decrease in global oil supply, thereby pushing up oil prices. In terms of demand, economic growth, changes in consumer preferences, and the emergence of substitutes can all affect the quantity demanded. When economic growth is strong, the demand for commodities such as energy and metals usually increases, driving up prices.
2. Economic cycle
The economic cycle has a significant impact on the commodity market. During the period of economic expansion, as corporate investment increases and consumer spending rises, the demand for bulk commodities increases, leading to price increases. On the contrary, during economic downturns, as demand decreases, prices usually fall. For example, during the 2008 global financial crisis, commodity prices generally fell sharply.
3. Monetary policy
The monetary policy of the central bank, especially the adjustment of interest rates, has a significant impact on the commodity market. In a low interest rate environment, borrowing costs for businesses and consumers decrease, while investment and consumption increase, thereby driving up demand and prices for commodities. High interest rates may lead to a decrease in demand and a drop in prices. For example, the Federal Reserve's interest rate hike policy typically leads to a strengthening of the US dollar, which in turn lowers commodity prices denominated in US dollars.
4. Geopolitical risks
Geopolitical events such as wars, sanctions, trade disputes, etc. can have a significant impact on commodity markets. These events may lead to supply disruptions or expected disruptions, thereby driving up prices. For example, conflicts in the Middle East often lead to fluctuations in oil prices.
5. Technological progress
Technological progress can improve production efficiency, increase supply, and thus lower prices. For example, the advancement of shale oil technology has made the United States one of the world's largest oil producing countries, significantly affecting the supply-demand balance of the global oil market.
6. Climate change
The impact of climate change on commodities such as agricultural products is particularly significant. Extreme weather events, such as droughts, floods, etc., may lead to reduced crop yields and higher prices of agricultural products. For example, the severe drought in the Midwest region of the United States in 2012 led to a significant increase in corn and soybean prices.
The following table summarizes the specific impact of the above factors on the commodity market:
Specific influencing factors
Supply and demand relationship: supply reduction or demand increase → price increase; Supply increase or demand decrease → price decline
Economic cycle expansion → increased demand → price rise; Economic recession → reduced demand → price decline
Low interest rates in monetary policy → increased demand → rising prices; High interest rates → reduced demand → price decline
Geopolitical risk: Supply interruption or expected interruption → Price increase
Technological progress increases production efficiency → supply increases → price drops
Climate change, extreme weather → reduced supply → price increase
In summary, the volatility of the commodity market is the result of multiple factors working together. Investors and businesses need to consider these factors comprehensively when making decisions on commodity purchases in order to better grasp market trends.