Two ways of international commodity pricing
Futures pricing is mainly applicable to commodities that can be processed through standardized contracts. However, if the quantity and quality of the transaction and the transaction time cannot be standardized, the price can only be determined through commercial negotiations between the main suppliers and demanders in the international market. There are two main ways to price international commodities: one is to determine the futures contract price of commodities through the futures market, so as to provide the price benchmark for spot trade of commodities. In this way, the futures market has become the key to commodity pricing. The other is that the main supply and demand sides of commodities determine the benchmark price through consultation. In this way, the market structure, strength and even negotiation skills of the supply and demand sides will affect the price of goods. Agricultural products, metals, energy products and other international commodities are mostly priced through the futures market, and different types of commodities have gradually formed various pricing centers based on the futures market. The prices of metals such as copper, aluminum, lead and tin are mainly determined by the London Metal Exchange, the prices of agricultural products such as soybeans, corn and wheat are mainly determined by the Chicago Mercantile Exchange, and the prices of energy such as crude oil are mainly determined by the New York Mercantile Exchange. Futures trading is helpful for commodity price discovery, but it also intensifies commodity price fluctuation. There are many participants in the futures market, and the market supply and demand information is rich. The futures price obtained through open bidding can reasonably and fully reflect the relationship between supply and demand and the expected price trend in the future, which is conducive to increasing the transparency of the market and improving the efficiency of resource allocation and trading. However, due to the increasing financial nature of futures trading, speculative factors are increasingly active in international commodity pricing, which intensifies the price fluctuation of international commodities. Futures pricing is mainly applicable to commodities that can be processed through standardized contracts. However, if the quantity and quality of the transaction and the transaction time cannot be standardized, the price can only be determined through commercial negotiations between the main suppliers and demanders in the international market. Compared with the futures market, the negotiation pricing method involves fewer market participants and is more susceptible to the relationship between supply and demand. The most prominent case in this respect is international iron ore pricing.
Representative of negotiated pricing: iron ore pricing mechanism
From the international iron ore pricing mechanism, the relationship between supply and demand is the main factor affecting the price. The international iron ore pricing mechanism has undergone a series of changes. Before 1950s, the trading scale of international iron ore market was relatively small, and the trading was mainly spot trade. Since the 1960s, the global iron ore trade has been expanding, and the supply and demand of iron ore have become increasingly tense. In order to safeguard their own interests, both the iron ore supply and demand sides have strengthened the iron ore negotiation, and the iron ore negotiation mechanism has been gradually determined. By the 1980s, a long-term cooperation mechanism for annual iron ore pricing was gradually formed. The long-term mechanism of annual pricing means that the iron ore price for the next fiscal year is determined by the major iron ore suppliers and suppliers in the world through consultation from the fourth quarter of each year. Once confirmed, the two parties will implement it in the next year according to the negotiated price, and other iron ore suppliers and demanders will confirm and follow this price. The annual long-term pricing association mechanism is conducive to the establishment of long-term and stable cooperative relations between the international iron ore supply and demand sides. For iron ore suppliers, stable iron ore prices can ensure a good and reasonable return on their mine investment; For the demand side of iron ore, stabilizing the supply channels of iron ore is conducive to reasonable arrangement of production plans and better control of production costs, which also ensures the price stability of downstream products (such as steel). However, from 20 10, the annual long-term cooperative pricing mechanism began to collapse, and the international iron ore pricing turned to quarterly pricing mechanism. 20 10 Since March, major international iron ore suppliers, mainly Vale, BHP Billiton and Rio Tinto, have announced that they have abandoned the long-term iron ore association mechanism and implemented the quarterly pricing mechanism. The quarterly pricing mechanism has changed the previous annual iron ore negotiation mode, and at the same time, it adopts index pricing on the basis of pricing, that is, the price of each quarter is determined based on the iron ore price index of the previous quarter. Because the pricing cycle is shorter and more flexible, iron ore suppliers are in a favorable position in price negotiation, but this pricing method also makes the international iron ore price fluctuate more frequently because of the shortened bargaining cycle. From the international iron ore pricing mechanism, the relationship between supply and demand is the main factor affecting the price. From the supplier's point of view, because iron ore is easy to hoard and store, the seller will not rush to ship because he is worried about the backlog of iron ore, so the supplier has certain advantages over the demander. Judging from the global iron ore supply and demand pattern, suppliers are relatively more concentrated than demanders. For example, the iron ore trade volume of the world's three major iron ore companies mentioned above has accounted for more than 70% of the world, which makes them have greater initiative in iron ore bargaining. From the perspective of market structure, the international iron ore demand side is not as concentrated as the supply side, and the impact on iron ore prices is scattered. In addition, the development of the world economy and the changes of macro-control policies in various countries will also have an impact on the demand for iron ore, thus affecting the price changes of iron ore. Due to the special product attributes and pricing mechanism of iron ore, it is difficult for financial capital to speculate on it, and the relationship between supply and demand is the most important factor to determine the price of iron ore.
Pricing mechanism and influencing factors of international commodity futures market
Establishing an international, radiant and influential commodity futures market has become the key for an economy to influence commodity pricing. At present, the main commodities in the world are priced through the futures market. Therefore, establishing an international commodity futures market with great market radiation and influence has become the key for an economy to influence commodity pricing. At present, major international futures exchanges are concentrated in developed economies in Europe and America, such as Chicago Mercantile Exchange and the New York Mercantile Exchange in the United States, London Futures Exchange and European Futures Exchange in Europe, which makes developed economies occupy an advantageous position in international commodity pricing. The establishment of futures market needs certain conditions. Historically, if a country wants to establish a futures trading market for a certain commodity, it will have a certain impact on international pricing. This requires that this country or region can produce or consume or trade, transit and distribute this commodity in large quantities. Therefore, the establishment of futures market is based on spot trading, and the most basic law of supply and demand is still the main factor affecting the pricing of international commodities. Taking grain as an example, according to the statistics of the Food and Agriculture Organization of the United Nations, the food price index compiled by the organization has been rising since July 20 12, and the food price index in September has climbed to 2 16, which is close to the level during the international food crisis in 2008. This increase in food prices is mainly due to the negative supply effect brought about by the decline in food production. This summer, the midwest of the United States suffered a severe drought, which led to a decline in the output of major crops such as soybeans, corn and wheat. Because the midwest of the United States is an important grain production base in the United States and even in the world, this has directly promoted the soaring prices of international bulk agricultural products. In addition to the support of the spot market, the establishment of the futures market also needs other support conditions. The establishment of futures market must have certain financial opening conditions. Only in this way can we attract global capital to enter the market for trading, and finally form a benchmark trading price widely accepted by the market. In addition, the establishment of the futures market must also have a sound financial, legal, communications and other infrastructure to provide investors with a trading basis. (Author: Institute of International Economics, Nankai University)
Extended reading
Financial and monetary factors are playing an increasingly important role.
In addition to fundamental factors such as supply and demand, financial and monetary factors have an increasing impact on the pricing of international commodity futures markets. Because commodities are mainly priced and settled in US dollars, the fluctuation of US dollar exchange rate affects the price changes of international commodities. In addition, due to the increasingly obvious financial attributes of commodities, financial speculation and speculation have also amplified the price fluctuations of international commodities. The US dollar is the main commodity pricing and settlement currency in the world. In the long run, there is an obvious negative correlation between the US dollar exchange rate and commodity prices, that is, the depreciation of the US dollar leads to an increase in international commodity prices, while the appreciation of the US dollar leads to a decrease in international commodity prices, which is particularly obvious in the futures market. The fluctuation of the US dollar exchange rate is closely related to the Federal Reserve's monetary policy. For example, influenced by the final landing of the third round of quantitative easing monetary policy of the Federal Reserve, as of September 20 12, the exchange rate index of the US dollar depreciated by nearly 3% compared with the end of August, while the commodity prices soared in the same period. On September 14, the CRB commodity price index rose to 320.9 points, up 3.66% from the end of August. With the acceleration of global capital flow, a large amount of capital has poured into the international commodity market. On the one hand, these capitals activate the market transactions of commodities, but at the same time, they also intensify financial speculation and speculation and become unstable factors in the commodity market. A report issued by the United Nations Conference on Trade and Development on September 18 pointed out that financial speculation has become the source of drastic fluctuations in the prices of commodities such as oil and primary products. Since the 1990s, the participation of financial investors in the commodity market has increased from less than 25% to more than 85%, and the volume of commodity derivatives traded on exchanges is 20 to 30 times higher than the actual output. Therefore, the agency warned that with the influx of financial capital, commodity prices can no longer reflect the actual relationship between supply and demand, thus affecting the effective allocation of resources and the operation of the real economy.