Commodity Finance: Emerging Markets
The International Monetary Fund (IMF) has identified a set of forces that affects and shapes various commodity markets in the global economy. These set of forces are: technology, geography, demography, and policy – each has played an important role in these markets.
By identifying these forces in various geographic areas, we have analyzed specific emerging markets in relation to commodity trading to estimate future trends.
On the latest commodity finance market report issued by Allen & Overy last 2018, respondents (traders) saw the most potential for growth in Asia Pacific and Europe. It is important to note that respondents were very optimistic with the Asia Pacific region. This optimism was largely driven by several factors; the growing influence of the region as a commodity trading hub specifically Singapore and Hong Kong; the continuous growth of the Chinese domestic market; and a growing private insurance market in Asia Pacific that is helping to unlock deals. (Allen & Overy, 2018)
Next to Asia Pacific is the European market who is marginally ahead of the Americas and Africa in terms of growth prospects. For the past few years, the region has developed structured financing solutions to transact with less mature markets.
In addition, there is also anticipation that United States would drive further development in the trading market over the past years. However, this positive outlook has been adversely affected by the outbreak of trade wars and more rigorous protectionist measures by the current administration.
Consequently, the United States imposition of tariffs from a number of countries and the mutual actions by the affected countries have had a material impact on commodity markets. Commodity specific tariffs have resulted in widening price gaps and has diverted trade among countries with a long standing history of transacting together. The more broadly-based tariffs have affected commodity markets through their overall impact on global trade and growth, especially regarding China, which is a major source of global metals and energy demand.
Furthermore, it is important to note Allen & Rover’s Commodity Finance Market Report last 2017 which illustrated the top market prospects by the various commodity traders surveyed. The illustration below identifies the most promising countries in the next two to three years based on the survey.
Figure 1: Commodity Finance Market Report – Allen & Overy. (2017,
May 03). Retrieved March 5, 2019, from
http://www.allenovery.com/SiteCollectionDocuments/Commodity_Finance_Market_Report_May_2017.PDF
These new markets provide us with relevant information about expected future supply and demand on which producers, consumers and traders can start planning for action. While Latin America and Asia Pacific, will play a much more significant role going forward and into the future.
References:
Allen & Overy. (2018). Commodity Finance Market Report 2018. Retrieved from Allen & Overy: http://www.allenovery.com/SiteCollectionDocuments/Commodity-Finance-Market-Report-2018.pdf
Commodity Finance Market Report 2017. (2017). Retrieved from Allen & Overy: http://www.allenovery.com/SiteCollectionDocuments/Commodity_Finance_Market_Report_May_2017.PDF
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