Commodity markets remain a critical support for global and local economies, directly influencing cost of living, manufacturing profitability, and policy decision-making. For South Africa, gold, platinum, coal, and grains are the building blocks of our economy. Understanding what influences commodity prices isn’t just vital to investors or traders—it’s basic knowledge for anyone interested in what market forces mean to everyday life.
Why Commodity Markets Matter
Commodities are simple farm produce or raw materials that can be bought and sold, such as oil, metals, grain, animals, and minerals. These are the pillars of the world economy, and their prices can change capriciously due to a host of reasons, overnight. From the price of Free State maize to Limpopo platinum mining, price movements in commodities create ripples in local and foreign markets.
Core Drivers of Commodity Prices
Let’s break down the top basics that move commodity price changes. The dynamics of these drivers work individually or in combination, taking usually very intricate market games.
1. Supply and Demand Dynamics
The very essence of any market, here the scenario is straightforward-when demand shoots higher than the supply level, the price increases, but when there is excess supply with dwindling or sleeping demand, prices crash.
Important to note:
- Elasticity problems: Some commodities, like oil, are quite inelastic in demand, i.e., consumption is not greatly influenced by price fluctuations.
- Seasonality affects agri-commodities – maize or wheat crops can vary greatly from season to season.
Example Table: Supply vs Demand Impact on Prices (Global Averages 2024)
| Commodity | Global Production (MT) | Global Demand (MT) | Price Movement (%) |
| Crude Oil | 101 million barrels/day | 103 million bpd | ↑ 4.2% |
| Gold | 3,100 tonnes | 3,500 tonnes | ↑ 7.5% |
| Wheat | 781 million tonnes | 802 million tonnes | ↑ 3.8% |
| Copper | 22 million tonnes | 21 million tonnes | ↓ 2.1% |
Source: World Bank Commodity Outlook 2024
2. Geopolitical Events and Policy Shocks
Weapons of mass destruction, trade sanctions, embargoes, and political upheavals can all push up prices, especially of metals and energy.
- Russia-Ukraine conflict: Inflated oil price and wheat in 2022–2023.
- Sino-US trade tensions: Also affecting copper and rare earths.
These happenings break up supply lines or alter export/import levels, driving prices higher or lower depending on perceived supply or shortage.
3. Weather Conditions and Climatic Trends
Fresh produce from the agricultural sector is most vulnerable to weather conditions.
- South African droughts will decimate maize and citrus exports.
- Asian flooding can impact rice or rubber plantings.
- El Niño/La Niña trends have extensive impacts across an array of industries.
Weather volatility has emerged as an increased focus due to global warming, and its forecasting becomes increasingly essential and sophisticated.
4. Global Economic Indicators
General economic indicators influence commodity market sentiment and demand.
- Interest rates: Increases in interest rates can be a dampener of commodity investment.
- GDP growth: Sustained world growth will likely heighten industrial commodity demand.
- Strength of currency: A strong currency will generally earn weaker commodity prices because commodities are dollar-denominated.
South Africa is export-oriented and thus highly exposed to global demand and exchange rate fluctuations.
Other Factors to Watch
While the above four pillars are most critical, a couple of other factors also have considerable effects on commodity price determination action:
5. Speculation and Investment Flows
Hedge funds and institutions utilize commodities periodically to hedge inflation or diversify portfolios. Flows can generate price movements well beyond the extent of fundamentals alone.
6. Technological Advances
Breakthroughs in extraction, cultivation, or processing methods cut costs and increase yields—perhaps placing downward pressure on prices.
7. Logistics and Infrastructure
Transport strikes, port delays, and infrastructure breakdowns can choke supply routes. In South Africa, we’ve seen how challenges at Transnet can delay coal and iron ore exports, impacting prices and contracts.
Highlight: South Africa’s Role in Global Commodities
South Africa is a top producer of:
- Platinum Group Metals (PGMs) – accounting for over 70% of global supply.
- Gold – historically significant, though its global share has declined.
- Coal – a persisting number one export amidst a shift in world energy.
Through our mineral resources, fluctuations in world commodity prices have immediate implications for national income, employment, and even the value of the rand.
Commodity Market Fundamentals FAQs
1. Why are commodity prices so volatile compared to other markets?
Commodities are subject directly to the vagaries of external factors like geopolitics and weather, whereas stocks are premised on organizations’ future earnings. This renders them more reactive and volatile too.
2. Is South Africa’s economy significantly dependent on commodities?
Yes. Diversification is continuous but nevertheless, mining and agriculture still form a significant part of GDP, export incomes, and employment.
3. How does currency fluctuation impact commodity prices?
Because commodities are priced in USD terms across the world, a declining rand raises the local price of imported commodities and boosts export earnings for South African producers.
4. How best can commodity prices be forecast?
There is no guaranteed method, but supply-demand fundamentals analysis, economic data, weather patterns, and geopolitical events form a good foundation for smart forecasts.
Conclusion: Navigating the Commodity Maze
It’s critical to understand the basics of the commodity markets if you’re making a wise decision—whether you’re a policymaker, investor, or simply interested in knowing why petrol and food prices change. Commodity price drivers are interlinked and sometimes volatile, but understanding where to look and what to search for provides you with a distinct advantage.
Here in South Africa, where our success is so intrinsically linked to the well-being of our farming and mining sectors, it is not only sensible to be informed—it is essential.
