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Commodity trade: Where's the scrutiny?

Commodity trade: Where's the scrutiny?
Published 17 Apr 2013 

The Interpreter has commented on the relaxed attitude of Australian authorities to the possibility that world commodity prices might be manipulated to our disadvantage. 

The Chinese seem more interested in the issue. The Glencore-Xstrata merger has finally been agreed by Chinese authorities after protracted negotiation. This agreement requires Glencore to divest itself of a copper mine and agree to a long-term supply contract. During the negotiations, there was even talk of allowing the Chinese some ownership stake. This is a revolutionary idea: if the Chinese had achieved representation on Glencore's main decision board (admittedly, always an unlikely concession) they might know what is going on in this secretive company, based in an obscure Swiss canton.

The Chinese are interested in commodity prices as a buyer, while Australia's interest is as a seller. While buyers will want low prices and sellers want high prices, it's in the longer-term interests of both parties to have well-functioning markets. When the market is dominated by a few participants who can use inside knowledge and strategic stockpiling, commodity cycles are exacerbated, to everyone's disadvantage except the speculators. [fold]

Just as the Chinese had their concerns that the proposed merger between the iron-ore operations of Rio and BHP had the potential to disrupt markets, powerful intermediary traders like Glencore have the same capacity to shift prices in ways that sometimes benefit the supplier, sometimes the buyer, but always the trader. Well-functioning markets require not only competition between the participants, but good information about supply and demand.  It's the sort of global issue that G20 might take on.

This article in the Financial Times gives a more general (and amazing) analysis of the big trading firms.

Photo by Flickr user Tobias Mandt

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