Governments and commodity market manipuation

The impact of government policies on commodity markets is significant and can never be ignored. The impact is so significant that it seems as though there are fewer competitive commodity markets given the overhang of potential government policies. A short-list of government actions and commodities includes just about every major market sector. In the just the last month, government have pushed markets because of their change in policies.

China announced it will slash prices of cotton that will be sold from its state strategic reserve. Their stockpile has been building and the government is at the point that the inventory will have to decline to reduce the stockpile costs. The local price will now be more in-line with the world levels. The cut will have a a major impact on both the cotton and clothing market. China is the number one textile user, so they will not be strong buyers on the world market.

Indonesia placed restrictions on the export of preprocessed nickel which has led to the highest prices in nine month for the metal. The government was not happy with the prices it was given so they changed the rules of the game.

The potential threat to natural gas users from a pipeline disruption because of Russia is still a real concern. In this case, logistical disruptions can lead to a structural change in the market.

Competitive markets are often in the imagination of traders.