Supply and Demand Information in Different Commodity Sectors
In commodity markets, fundamental analysis is the examination and interpretation of supply and demand characteristics. This discipline varies depending upon the commodity or raw material product. While consumption of commodities is ubiquitous and commodities demand occurs around the globe, supply is often concentrated in certain locales. This is because mineral deposits are specific to certain regions or in the case of agricultural products; they may require specific types of soil or climates in which they can flourish.
The analysis of supply for specific commodities is therefore, dependent upon information from production areas and sometime that presents issues. Some countries, like the United States, publish reams of data about commodity production and stockpiles. Others, like China and Russia, consider commodity production and inventories strategic state secrets. Transparency is a key factor when it comes to producing a robust analysis in commodity markets. Demand often depends heavily on the global economic landscape as well as demographics. Population and wealth trends around the globe often dictate demand intensity and flows of commodities. When it comes to supply, each sector and commodity has its own idiosyncratic output characteristics. For the purposes of this article, I will examine the supply data for raw material markets by sector and in individual commodities where available.
While oil production occurs all over the world the most high profile producers have historically belonged to OPEC -- the Organizations of Petroleum Exporting Countries.
Members of OPEC currently include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Major non-OPEC oil producing nations include Canada, the United States and Russia.
The mission of OPEC is to ensure stable oil markets and an efficient, economic and regular supply of oil to consumers and a steady income for producers as well as a fair economic return on capital for those investing in the petroleum industry.
OPEC is a good source of international supply data as is the American Petroleum Institute (API) and the U.S. Energy Information Administration (EIA). The API and EIA also provide supply (and demand) data on other energy commodities such as natural gas, coal, power and all other energy sources. Supply data in the energy tends to be robust and accurate. When it comes to stockpiles, many nations provide data on strategic energy stocks. However, this information is often not available or can be suspect in countries that consider the data a strategic state secret.
Precious metals supply data is available from various trade associations such as the World Gold Council, The Silver Institute or the Platinum Guild. Futures exchanges that list gold, silver, platinum and palladium contracts also supply fundamental supply data or links to the information. The largest producer of gold in the world used to be South Africa, today it is China. In silver, Mexico and China are the world's largest producers. The vast majority of platinum and palladium production in the world comes from South Africa and Russia.
Each of these metals also has a trade association that provides a wealth of supply data. When it comes to ferrous metals, there is also supply and stockpile data available from trade associations. Chile is the world's largest producer of copper. China produces the most aluminum, Russia and China are the largest nickel producers and China produces the most lead, tin and zinc.
The U.S. Department of Agriculture (USDA) is perhaps the best resource for both supply and demand as well as inventory data for grains including corn, soybeans, wheat, oats, rice and other grains. The USDA issues periodic reports on these markets that are free of charge. Another great resource for this type of data is the futures exchanges around the world that trade these agricultural commodities.
Once again, the exchanges that offer contracts in coffee, sugar, cotton, cocoa and orange juice often provide information on stockpiles as well as supply and demand data. Each of these luxury commodities also have trade associations that provide individual fundamental data geared specifically for each commodity. Brazil is the world's largest coffee and sugar producer. China and India produce the most cotton. The Ivory Coast and Ghana are the major cocoa producers and Brazil is the largest orange producer.
The U.S. Department of Agriculture is a great source of data for markets in live cattle, feeder cattle, lean hogs as well as other animal proteins. The USDA issues periodic reports on these commodities for both supply and demand for these markets. The U.S. and Brazil are the world's leading beef producers and China is the number one hog producer.
In commodities, it is easy to get one's hands around supplies, particularly in countries where there is a high degree of market transparency. When it comes to demand it gets a bit trickier but understanding macro and micro economic factors helps in understanding the issues that increase or decrease demand for raw materials over time.