Commodities, types & categories

First of all, commodities, as an asset class, do not only include natural resources, but also everything related to the infrastructure (cargo can vary from container freight, to wet or dry freight) which ensures transportation of these resources.

Infrastructure is crucial; roads, airports, seaports or harbours, and train stations of course, but also ships, aeroplanes, trains, cars and trucks. Grids and pipelines that transport electricity, gas or oil are also part of infrastructure.

This widespread connection also makes clear how important geo-politics are. As infrastructure does not end at the border of a nation, it is influenced by international agreements and policy.

Emissions

Secondly, commodities, as a category to invest or trade in, also incorporate emissions. The Kyoto protocol is an international treaty on climate change which, in an effort to reduce world-wide emissions, assigns mandatory emission limitations on greenhouse gas emissions to the signatory nations. Since Kyoto (1992), trading in emissions has become a very interesting category.

Focus regarding emissions is mainly on CO2 (carbon dioxide), but CH4 (methane), N2O (nitrous oxide), O3 (ozone) and SO2 are also very relevant.

The third category of commodities is grown, such as agricultural or tropical products. Some products are grown in the ground. Beans, sugar (cane), rice, oats, corn and wheat are examples of such, whereas coffee, cacao and palm oil are examples of tropical products. Other products are grown/produced by farmers; products such as cattle, pigs and poultry.

The fourth main group of commodities is more related to natural resources that are found in the ground. The group contains the categories energy, industrial metals and precious metals.
Energy includes oil, gas, coal, uranium (for nuclear energy) and electricity (made by burning fossil fuels).

Please don't forget that all commodities are tangible goods, therefore the quality differs from product to product. Oil, for instance, can vary from sweet to sour and from light to heavy. It can be treacly and full of sulphur, but that is not necessarily the case.

Additionally, oil, as a commodity, includes different forms of crude (Brent, WTI, Dubai-Oman), but it also includes oil products, such as refined products (heating oil and gas oil) and even equivalents (gasoline, jet fuel, etcetera).

Metals

Industrial metals include steel, tin, led, zinc, copper, aluminium and nickel. These are specifically useful for building houses. Precious metals, like gold, silver, palladium and platinum are not only used for jewellery, but also in the production of catalysts for cars and chips for computers.

The last two areas of commodities are fibres and basic materials. Examples of fibres are cotton, wool and silk, whereas basic materials include paper, rubber, chemicals, lumber and plastics.

Of course, you could be thinking of other products that could have been included in the story above. However, I hope to have provided you with a little insight into the world of commodities.

Remember that all groups have their own fundamentals by which their prices are influenced, and within each group each product has its own fundamentals. This makes the commodity markets very interesting and keeps us curious about all their ins and outs.