Benedicte Gravrand, Opalesque London: Living in a Material World – the Commodity Connection, by Kevin Morrison, 308 pages, published in June 2008 by John Wiley and Sons Ltd. A timely introduction to commodities from a veteran journalist who specialises in the subject.
This is an extremely readable book that takes the readers on a tour around the most important raw materials, from their sources to their uses, passing through their dealings in the financial market. Kevin Morrison, a journalist who has worked for the Financial Times, Reuters and The Sydney Herald Tribune, travelled the world, met with “farmers, miners, oil ministers, financiers, environmentalists, lawyers and policy advisors” and brought together a well researched, fast-paced and informative piece on our “material world”, covering energy, agriculture, climate, metals and finally trading, adding odd anecdotes to information, as well as notes and references.
The book examines some of the factors behind the moves in commodity prices and their link with climate change, the connection between the consumer and the raw materials, the every-day relevance of commodities. It is aimed at investors and consumers.
The first section discusses energy, its economic value and its political importance. The author takes a look at the re-emergence of coal, renewable energies such as wind and solar nuclear power, oil, hydrogen cars, biofuels.
For example, wind and solar might be the best source of energy but cannot be stored; meanwhile, the demand fore uranium (for production of electricity) will increase by 70% by 2030; and Opec production is depleting 5% a year, which means it is short of 1.5 million barrels, daily. I quote: “there are four goals of the so-called ‘second generation’ biofuels, and economics is not one of them”.
He concludes that in order to avoid an environmental catastrophe, significant changes will have to be made at local, regional and national levels, and that the expansion in global coal supplies will divide traditional government allies.
The chapter on agriculture examines its increasing connection to energy through the biofuel production, the impact of greater meat consumption on the supply of grains and oil seeds, and the influence of government subsidies.
The author remarks on the greater land space being taken up for biofuel production, and the widespread political and business support ethanol has received this decade and its economic implications. He looks at the production of poultry, cattle , milk, corn syrup, sugar (and Brazil), land scarcity due to population growth, super seeds taking over the diversity of their predecessors, the use of nitrogen attributed to corn planting.
The pro-corn ethanol policy, government subsidies for agriculture, monitoring of our food intake (for better supply-demand balance) are some of the issues that need to be addressed.
The next part looks at the environment as a commodity. He explains carbon footprints, environmentalism, global warming, the costs of climate change, tradable carbon permits and the emissions market, the need for forests and biodiversity, CDMs, and water (“the irreplaceable commodity”).
Global warning and water shortages may end up being a security issue too, he says, and climate change requires many solutions. Interestingly, carbon pricing may become as common as oil or gold.
Chapter 4 focuses on metal, especially widely-used copper, and the impact of greater demand for metals.
For example, the demand for copper is so great (“it has made the electronic age possible”) that has attracted metal thieves who take on “power lines, manhole covers, sewer plates, aluminium light poles, parking meters and motorway signs.”
The author looks at copper production in Chile, in Africa, its travelling around the world for refining and manufacturing, its being traded in various exchanges. He warns on the constraints on supply due to “depleted resource bases, political risks, water availability and substitution from new mineral sources.”
The final chapter looks at the trading of commodities. The author talked to Chicago traders and examines the CBOT’s role as the global price barometer for grains and oilseeds, electronic trading and how it has changed the market, futures and options, hedge funds and other players, indices.
He noted the political sensitivity of commodity prices: “when they are high, politicians blame speculators for manipulating prices; when they are low, in particular where agricultural commodities are concerned, there are calls for more assistance for farmers.” He warns about excessive prices, a good signal of that being when there is too much attention on commodities in the media. “This concentration can lead to a bubble, as seen with the dot com experience.” Although we are not quite there yet.