Buying and selling of finished products is essential nowadays for society in general because these products meet the daily needs of housing, food, clothing, etc. But before manufacturing companies can deliver their products to consumers, there is a long and sometimes complex process: raw materials buying and selling.
What we call a raw material or commodity is any element in its basic or pure state that can be transformed into a more complex good through industrial manipulation. For example, we transform the trunk of a timber tree into boards for housing construction, or we use a production process to combine various raw materials to create food products such as the cookies we buy in the supermarket.
It is extremely important for a company dedicated exclusively to the purchase and sale of raw materials to know the variables that affect their trade. Of course, these may vary depending on the perspective of the company doing the analysis, but in short we can find two main variables:
Price volatility: Trade in raw materials is characterized by price instability, which can cause uncertainty for companies engaged in buying and selling. Such price volatility, as measured by the demand for the raw material, must be managed by the trading companies. Adapting quickly to a flexible market price can be key to surviving in the market.
Trade barriers: Some countries choose to protect the local economy by imposing trade barriers, which may be tariff or non-tariff (i.e., technical obstacles, import and/or export licenses, embargoes, etc.). These barriers end up making products more expensive and even ruining relations between countries if an acceptable agreement between the parties is not reached.
Knowing the variables that affect world raw materials trade is key to understanding the challenges faced by producers and how they can influence your buying, of course not only these variables affect trade in raw materials. Knowing which ones affect your product will be vital for success in the market. We invite you to learn more about this world where the simple becomes complex.
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