Strategic Finance Issues

THE CASE

The global commodity market is a vast and complex system that plays a crucial role in the world economy, influencing industries, governments, and consumers. Commodities are broadly categorized into energy, metals, and agricultural products, each of which is subject to supply and demand dynamics, geopolitical factors, and macroeconomic trends.

Energy commodities, such as crude oil, natural gas, and coal, are among the most traded resources due to their fundamental role in powering economies. Oil, in particular, is highly sensitive to geopolitical events, OPEC policies, and technological advancements in renewable energy. Price fluctuations in this sector can have widespread economic implications, affecting inflation, transportation costs, and industrial production.

Metals, including gold, silver, copper, and aluminum, are essential for various industries, from construction to electronics manufacturing. Precious metals like gold and silver are often considered safe-haven assets, meaning their demand increases during economic uncertainty. Industrial metals, on the other hand, are closely linked to global economic growth, as infrastructure projects and technological developments drive demand.

Agricultural commodities, such as wheat, corn, soybeans, coffee, and livestock, are critical for global food security and economic stability. Climate change, supply chain disruptions, and trade policies significantly impact this sector. The volatility of agricultural prices can have far-reaching consequences, affecting farmers’ incomes, food affordability, and even political stability in some regions.

The pricing of commodities is determined by global exchanges such as the New York Mercantile Exchange (NYMEX), the London Metal Exchange (LME), and the Chicago Board of Trade (CBOT). Futures contracts, which allow buyers and sellers to lock in prices for future delivery, are a key feature of commodity markets, helping businesses hedge against price fluctuations.

Macroeconomic factors, including interest rates, inflation, and currency exchange rates, also play a significant role in commodity markets. A strong U.S. dollar, for example, often leads to lower commodity prices, as most global commodities are priced in dollars, making them more expensive for non-dollar buyers. Additionally, emerging economies like China and India have a substantial impact on demand, particularly for energy and industrial metals, given their rapid industrialization and infrastructure expansion.

Geopolitical events, including conflicts, trade disputes, and sanctions, frequently disrupt supply chains and influence commodity prices. Sanctions on major oil-producing countries, for instance, can restrict supply and drive prices higher, while trade tensions can lead to tariffs that affect agricultural exports and imports.

Sustainability concerns and technological advancements are increasingly shaping the global commodity market. The push for renewable energy and electric vehicles is reducing dependence on fossil fuels while increasing demand for metals like lithium, cobalt, and nickel. Similarly, advancements in agricultural technology are improving yields and efficiency, but climate-related risks remain a challenge.

Overall, the global commodity market is highly interconnected with economic trends, geopolitical developments, and technological shifts. It remains a crucial area for investors, policymakers, and businesses to monitor, as fluctuations in commodity prices can have wide-ranging effects on global economic stability and development.The global commodity market has experienced significant fluctuations in recent times. Here’s a review of the current state of the market:

Required:
Obtain the monthly market prices for at least three (3) commodities in Africa, developing
economies, and developed markets, spanning three (3) years, and should be between 1960 and 2023.

Provide a report based on descriptive statistics, trends of the shocks or volatilities, moving
averages, and outlook growth of the commodity prices for your selected markets. Convince an investor on whether or not to invest in these markets.