What is Commodity trading?
Commodity trading is referred to as the buying and selling of large range of products belonging to 4 categories- metal, energy, livestock (meat) and agriculture. It is an effective way for investors to diversify their investment portfolios beyond their collateral securities.
Investors trade in metals such as silver, gold, copper and platinum because of their conveyable and reliable value. They might also invest in metals of higher value to deal with the fluctuations in the market economy- inflation/deflation. Investments might also be carried out in the category of energy as oil and gas was reported to be one of the most emerging resources in the last decade.
Owing to technological advancements in the previous years, alternate resources of energy like solar energy, biofuel etc. have proved to be the center of attention for most investors. Attempts at replacing crude oil with these reformed energy sources have majorly affected the price ratio in the commodity market.
PRE COVID COMMODITY TRADING:
India’s overall imports in April 2019-October 2020 were estimated to be $359.6 billion, exhibiting a negative growth of 4.61% over the period of last year.
India’s overall exports in the month of April 2019 -October 2020 were estimated to be $310.2 billion, having a positive growth of 1.5 % over the last year.
Exports for the month of October 2019 were $26.3 billion, in contrast to $26.67 billion in October 2018, having a negative growth of 1.1 per cent. In terms of rupees, exports were were 1,87,382.28 crores in the month of October 2019, in contrast to 1,96,406.42 crores in October 2018, having a negative growth of 4.6%. Major commodity exports included Electronic goods, drugs and pharmaceuticals Gems and jewellery and engineering goods.
Imports in October 2019 were around $37.4billion, which corresponds to 16.3 % lower in Dollar terms and 19.2% lower in Rupee terms over imports of USD44.68billion in October 2018. Cumulative value of imports for the period April 19-October 2020 corresponds to $280.67billion (Rs.19,67,625.73crore), as compared to $306.31 billion in the period of April-October 2018-19, having a negative rate of growth at 8.37% in Dollar terms.
India pre covid had a decline in imports as well as rise in exports within normal limits and was registering positive economic growth.
IMPACT OF COVID 19:
More than 50% of India’s population reside in rural areas, commodity trading in livestock and agriculture provides maximization of profits at large scale.
The coronavirus outbreak has hit the commodity trading market to its core. Many investors are still recovering from economic shock, by bearing huge losses.
Due to a complete lockdown, the production in all 4 categories of commodity trading came to a standstill. The disequilibrium caused by imbalance between supply & demand, caused increased volatility and decreased liquidity.
Trading in the field of energy was the worst hit of all; by being devaluated by 14.78%. The rate of velocity at which everything went down still remains unprecedented.
The prices of oil got reduced to negative figures. Refineries began working at reduced capacities to meet with the plunging demand. Overseas export and import of crude oil got disrupted causing the market to crash live never before. Tone's of gallons of fuel which was earlier used in airplanes and domestic transportation, stopped getting sold due to interim shutdown of airports and blockage of roadways.
Copper and zinc prices have fallen by 10-15 percent. China is a profound importer of Copper, but due to restrictions on overseas trade, the imports are blocked.
Moreover, due to reduced construction work, the production of steel has gone stagnant. Labour force is not available to carry out industrial activities and resume production at an enthusiastic level to fill the void caused in these 3 months. Although, commodity trading of Gold has proven to be beneficial for investors as the demand gets higher with every minute.
Equipment, safety measures and awareness about hygiene is not available for miners and gold diggers; delaying the process of extraction and distribution. There have been inconsistencies in shipments and loading due to lack of vessels.
Apart from that, the agricultural output was majorly affected by the administrative restrictions. When the farmers finally gave a fresh start to their production with the help of relief packages, a new uncanny challenge came their way. Recently Locust swarms have been reported in the states of Maharashtra, Rajasthan and parts of Haryana. This has yet again questioned the food security in India. Therefore, commodity trading in rural/primary sectors still remains affected.
CONCLUSION: What should be done?
The need of the hour is planning a long-term sustainable layout of resource management and strategic risk assessments. The investors must be ready for the worse as the nature of the pandemic remains unpredictable and versatile. The goal is long-term survival, not short-term profit maximization. Critically analysing the fluctuations in the prices, reforming traditional ways, monitoring transactions online and taking required safety measures can ensure the survival of the Commodity Trading market.
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KEYWORDS: Commodity, Trading, Exports, Imports, Covid 19, Pandemic, Shining Tomorrow Foundation, Livestock, Agriculture, Metal
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