What are raw materials? It’s not just grain, oil, or copper. It’s the pulse of global economic processes. Every bag of coffee, ton of coal, or barrel of oil lays the foundation for national GDPs, company budgets, and institutional investors’ decisions. Raw materials create the infrastructure of global commodity circulation, set trends for markets, and shape investment horizons.
What are raw materials: categories
These are basic resources that underpin the global economy. They are actively traded on exchanges and are divided into four main categories:
- Energy resources. Include oil (Brent, WTI), gas, coal, uranium. In 2023, oil covered 33% of global energy consumption. Brent serves as a benchmark in 60% of contracts. Prices influence inflation and the currencies of exporting countries.
- Metals. Divided into industrial (copper, nickel, aluminum) and precious (gold, silver, platinum). Copper is an economic growth indicator. Gold is a protective asset in crises: demand for it increases by up to 15% when the stock market falls.
- Agricultural products and livestock. Key positions include wheat, soybeans, corn, cotton, livestock. Soybean export leaders are the USA, Brazil, Argentina (80% of the market). Livestock futures are used for hedging.
- Financial derivatives on commodities. These are contracts, ETFs, options, and futures. The volume of transactions on CME exceeded $35 trillion in 2023. They allow earning on price movements without physical delivery of goods.
Raw materials are not just resources but tools for managing risks and capital on a global scale.
How raw materials work on exchanges
Every commodity transaction takes place on specialized platforms. The London Metal Exchange (LME), the New York Mercantile Exchange (NYMEX), ICE, and CME provide liquidity, transparency, and market price.
Pricing
Prices are formed in real-time. Price is influenced by the supply/demand ratio, political risks, weather conditions, and the dynamics of the dollar. For example, a drought in Brazil can instantly raise the price of coffee by 18%.
Market participants
Traders, institutional investors, hedge funds, producers, and processors. Each uses the market in their own way: some hedge, some speculate. For example, agricultural companies fix the crop price six months before harvest by entering into futures contracts.
Trading in commodities requires high liquidity, understanding of volatility, and constant analysis. This is the only way to predict fluctuations and manage risks.
Investing in raw materials
Financial flows are directed to the commodity market for a reason. Investments in commodity assets allow:
- Diversify the portfolio. In 2008, when the stock market collapsed by 37%, the commodity index only decreased by 14%.
- Protect assets from inflation. Gold grew by 41% from 2019 to 2022 when US inflation reached 8.6%.
- Access global trends. The rise of electric vehicles increases demand for lithium, cobalt, and copper.
The benefits of investing became particularly noticeable against the backdrop of geopolitical crises. Gas prices in Europe tripled after 2022, making energy resources highly profitable assets.
How traders use commodity market analysis
Using multiple types of analytics allows predicting price movements with up to 85% accuracy. The analysis includes:
- Fundamental analysis. Evaluates macroeconomics, crop yields, geopolitics, currency exchange rates. For example, a USDA report on grain stocks can change global wheat prices by 7–10% within a day.
- Technical analysis. Applies charts, indicators, and trend models. Most traders use moving averages, RSI, Bollinger Bands. This helps identify entry and exit levels.
- Seasonal analysis. Makes forecasts based on historical cycles. For example, gas prices traditionally rise in November–January when the heating season begins in the Northern Hemisphere.
What are raw materials in the eyes of a trader? It’s a constantly changing mosaic where it’s important to quickly read signals and make decisions.
Factors influencing prices
Commodity prices move under the influence of many variables. The main triggers are:
- Demand and supply. The balance between production and consumption volumes sets the trajectory. For example, in 2020, the pandemic reduced oil demand by 30%, causing prices to plummet to $18 per barrel. In 2021, on the contrary, a sharp recovery in demand pushed Brent above $70.
- Geopolitics and climate. Military conflicts, sanctions, regime changes — each of these factors can reshape the market structure. Climate conditions also directly affect yields and production: droughts, floods, frosts regularly create local shortages.
- Currency exchange rates. Since most commodity trading is conducted in dollars, fluctuations in currency pairs like USD/EUR, USD/CNY, and others have a significant impact. Strengthening of the dollar reduces the attractiveness of commodities for importing countries, restraining price growth.
Each of these factors can sharply change price dynamics, even under stable market conditions. Understanding the relationships between them allows for more accurate forecasting of commodity asset movements.
Commodity markets and their structure: from farmers to ETFs
Modern commodity markets function as high-tech ecosystems. Each player performs their function:
- Producers supply physical raw materials: mines, farms, agroholdings.
- Processors purchase resources for industrial needs.
- Financial intermediaries and exchanges provide access to trading.
- Institutional investors add liquidity through funds and derivative instruments.
In 2023, the capitalization of the largest commodity ETFs exceeded $420 billion. Funds like the Invesco DB Commodity Index Tracking Fund allow investing in a basket of resources: oil, gas, copper, wheat, and gold — in one package.
Trading in commodities on these platforms represents a powerful financial mechanism. It connects the interests of farmers in Iowa with investment portfolios in London.
What an investor should consider
Investing in commodities is accompanied by both potential profitability and risks. Below is a detailed list of the main characteristics:
- Profitability. The average annual return of commodity ETFs is 7–12%, with jumps of up to 30% in six months under favorable market conditions.
- Risk. High volatility: for example, the price of nickel on LME in March 2022 increased by 250% in two days due to supply shortages.
- Liquidity. The highest liquidity is observed in oil, gold, and wheat — daily turnovers exceed $100 billion.
- Regulation. Strict control by exchanges and financial commissions reduces manipulation risks but requires compliance with strict rules.
- Entry barriers. Modern platforms lower the threshold to $50–$100, allowing private investors access to the market.
Risk analysis is a necessary step before entering the market. Without assessing volatility, seasonality, and geopolitical background, it is impossible to form a sustainable strategy.
Why it’s worth learning about raw materials now
The world is entering an era of deficits: water, grain, rare earth metals. Every climate change, sanction, global conflict increases the value of resources. Therefore, understanding what raw materials are is not just knowledge — it’s a decision-making tool.
The electrification of transport requires lithium, nickel, and copper. Agricultural crises make food resources new growth points. Oil and gas, despite the green agenda, will remain systemically important at least until 2040 according to the IEA forecast.
Conclusion
What are raw materials for an investor? It’s not a short-term trend but the foundation of a long-term strategy. The market requires analytics, understanding of cycles, and precise asset selection. Successful investments in this segment are based on statistics, seasonality, fundamental reports, and smart diversification.
An investor who can assess the value of raw materials and build a strategy based on it not only gains profit but also gains an instrument of influence.
