The price of raw materials, which are necessary for many of the things we use every day, is determined in part by commodity trading. Commodities are a critical component of any economy. Commodity prices, which vary from agricultural goods to precious metals, are affected by a number of variables, including demand and supply, economic growth, production cost, natural disasters, and a lot more. The global economy depends heavily on commodity prices, which have an impact on everything from the price of consumer items to the stock market. Investors and consumers alike must comprehend how these variables combine to affect commodities pricing.
Investors and traders now understand the dynamics of supply and demand in the commodities trading industry, especially those using platforms like online stock trading app, let’s discuss about the factors influencing demand and supply.
Factors Influencing Demand
The amount of a commodity that a consumer purchases is mostly determined by the cost of the commodity, the cost of related items, the customer’s income, and the consumer’s tastes and preferences. Here is a detailed analysis of each factor affecting the demand
Price of the actual commodity
Only wealthy individuals can afford to purchase a product when it is being sold for a very high price. The demand for that commodity will thus decline. However, when the price is low, a greater number of people will be able to purchase it. This leads to an increase in the demand for the particular product. As a result, the demand for the product is significantly influenced by its price.
Costs of other comparable products
Prices of comparable items that can be used as alternatives also have an impact on consumer demand for a commodity. Tea and coffee can both be used in place of one another. The consumption of certain goods fluctuates in response to variations in their pricing.
The demand in a country fluctuates as the population does. The size and makeup of the population have changed as a result of this shift in population. The demand for goods and services will undoubtedly rise as the population continues to grow.
Income level of the consumer
The amount of a consumer’s income has an impact on his demand as well. It only makes sense that when income levels rise, consumer demand for products and services will rise as well. Real income levels that are higher provide the nation with additional purchasing power. The demand for products and services rises together with the degree of income.
Factors Influencing Supply
A commodity’s supply is influenced by a number of significant factors. The supply of the product will fluctuate if any one of these factors changes. Here is a detailed analysis of each factor affecting supply.
Price of the specified Commodity
In commodity trading, the price of a commodity is the main factor affecting its supply. A commodity’s price and supply are often directly correlated. This indicates that when the price of a specific good rises, so does the amount supplied, and vice versa. It occurs because there are more opportunities to profit at higher pricing. The company is compelled to put more products up for sale as a result.
Prices of Other Goods
As resources may be put to other purposes, the quantity of a good is determined by both the price of that good and the prices of other goods. Other items become more lucrative in contrast to the particular commodity when their prices rise. As a result, the company switches from producing the supplied commodity to producing other items with its limited resources.
Production and Technology
The cost of manufacturing rises together with the amount owed to production factors and input costs. As a result, profitability declines. The seller lowers the commodity’s supply as a result. On the other hand, a gain in the profit margin brought on by a drop in the price of manufacturing inputs or components results in an increase in supply.
The price of raw materials, which are necessary for many of the things we use every day, is determined in part by commodity trade, which is a crucial part of any economy. In addition, by balancing supply and demand, permits risk management through hedging and effective resource allocation. Investors and traders have easy access to simple platforms like the Kotak Demat and online stock trading applications that enable them to engage in commodity trading. They provide a variety of instruments and resources to follow market trends, examine price changes, and make wise trading choices.