09 Jul 2013

Price Formation in Commodities Markets

Financialisation and Beyond

Diego Valiante

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This report attempts to demystify the sphere of commodities markets worldwide by providing an in-depth examination of the major commodity groups, focusing on product characteristics, supply chains, pricing, liquidity, financial intermediation, industry players and the interplay between derivatives markets and the underlying physical goods. In so doing, the report contributes to the international debate with important information about the diverse market structures across commodities, including supply and demand elasticities, concentration of ownership, infrastructure organisation and layers of financial participation. While describing the endogenous factors, it also examines the increasing role of exogenous factors now impacting commodities. Finally, it assesses the drivers of the growth of derivatives markets and their impact on price formation.

The report was drafted by Diego Valiante, Head of Research at ECMI and CEPS Research Fellow. It draws on the debate and presentations that took place at the CEPS-ECMI Task Force on Price Formation in Commodities Spot and Futures Markets. The Task Force was chaired by the independent commodities expert and former Director at Chicago Board of Trade, Ann Berg with the support of two Rapporteurs, Diego Valiante and CEPS Senior Research Fellow Christian Egenhofer.

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