In: Finance
explain in details about united kingdom commodities market with charts and example
U.K. COMMODITY MARKETS
Organised markets in primary commodities
are an important part of the facilities available in the United
Kingdom for the conduct of international trade. Markets in primary
com-modities are to be found in many countries abroad. some
transacting a far greater volume of business than the corresponding
markets in the United Kingdom; but these foreign markets are mainly
concerned with domestic demand or domestic supply. The
distinguishing feature of the U.K. markets is their international
character; and in the sphere of international merchanting. that is.
buying from one country and selling to another. and in the variety
of commodities in which they deal. they are col-lectively the most
important in the world. They have their origins in the history of
British exploration and investment overseas and industrialisation
at home. and in the consequent growth of the United Kingdom's
world-wide trading links. Post-war During the war. many U.K.
revival commodity markets were
closed and essential imports became the
responsibility of Government Departments.
assisted in most cases by private traders in
the arrangement of business. Afterwards, the possibility of
restoring markets to their former status was early considered. in
view of the important contribution which they had prev-iously made
both to international trade and to the U.K. balance of payments.
The markets required wide facilities for making and receiv-ing
payments in sterling and foreign currencies in settlement of
contracts with overseas
exporters and importers; but the United
Kingdom's severe war-time losses of foreign
exchange and the bilateral payments arrange-
ments which had in consequence to be
negotiated with foreign countries. made it
impossible to grant these facilities immediately
to all the commodity markets. However. as
early as June 1946. a start was made with a
trial scheme for the coffee market which had
later to be revised. Shortly afterwards other
exchange control schemes were introduced
which made it possible to reopen the markets
for rubber and tin. These two commodities
are produced largely within the sterling area.
It therefore seemed unlikely that the reserves
would suffer serious loss if the markets were
allowed free access to supplies. by means of
open import licences. or if the exchange control
restrictions on merchanting transactions were
relaxed to enable merchants to trade freely
with buyers and sellers anywhere in the world.
and to hold stocks and deal on commodity
futures markets abroad. In 1951 a basically
similar scheme was introduced for the cocoa
market though. as with the amended scheme
for coffee. sales to countries outside the sterling
area had to be settled in dollars if the com-
modity had originally been bought for dollars.
These early schemes were drawn up in the
context of an inconvertible pound. Subsequent
schemes. introduced in the years 1952-54. went
a step further in that they applied to com-
modities produced to a greater extent in
countries outside the sterling area. The re-
opening of these markets. namely those for
lead. sugar. zinc. grain. copper. cotton and
copra. was an important part of the policy then
being followed of moving gradually towards
making sterling convertible. The arrangements
made allowed several of these commodities
originating in and purchased from dollar area
countries to be sold for sterling in other
countries outside the sterling area. During this
period similar facilities were incorporated in
the existing schemes for cocoa and coffee. For
cotton and grain. however. which had pre-
dominantly to be bought from the dollar area.
these so-called dollar / sterling facilities were
withheld-in the same way as they had
formerly been for cocoa and coffee-until the
end of 1958. when non-resident-owned sterling convertible over
External Accounts. For a short time in August 1952 U.K. merchants
were permitted. for special reasons. to purchase certain
commodities from. the dollar area for resale for sterling to
countries in the European Payments Union; but
these temporary facilities formed no part of
the arrangements subsequently made to enable
U.K. markets in some of the commodities to
be reopened.
United Kingdom commodities :-
1.The Bank of Exchange control schemes :-
England's part were introduced for twelve
commodities in all. CA scheme was also
provided for wool, covering only futures trans-
actions, to assist the operation of the London
Wool Terminal Market which opened in 1953)
The schemes were drawn up and administered
by the Bank of England, as agents for H.M.
Treasury, working in close co-operation with
the appropriate Market Associations. Partici-
pation was extended to any U.K. firms which
were members of, and recommended by, the
appropriate Market Associations. The Asso-
ciations, in their turn, assumed the responsibility
of ensuring that their participating members
complied with the arrangements. This system
enabled the several hundred firms concerned to
conduct their business freely with overseas firms
and on foreign markets, provided that they
followed the broad trading rules laid down by
the schemes, without needing to obtain con-
firmation that each transaction was permissible
before making a contract. Because this freedom
was such a valuable advantage it was thought
that there would be little risk in making it
available to the commodity markets, whose
members were subject to the discipline imposed
upon them both by their own Associations and
by exchange control legislation. This confidence
was justified; even in the most trying conditions
of the' cheap sterling ' era, when foreign com-
petitors enjoyed advantages which had to be
withheld from merchants in this country, the
markets adhered loyally to the principles and
practices of the U.K. Exchange Control.
2. Value of The market :-
The service which the commodity markets provide
to both producers and consumers enables
business to be done under accepted rules of
trading and conduct, on standard terms of con-
tract covering specified grades of commodity.
For U.K. traders and manufacturers it is an
advantage to have markets operating in this
country where they can be sure of buying their
raw materials in their own currency at com-
petitive prices.
3 :- Forward Contract :-
Forward contract It may be helpful, before
discussing the present position of the markets and some current
prob-lems, to outline the broad principles of com-modity marketing
procedures and particularly
the operation of trading in futures.
The general use of the c.i.f. contract has
already been mentioned. This is essentially
a forward contract, commonly made before the
goods to which it relates are shipped from their
country of origin. The date on which the con-
tract is entered into may therefore precede the
date of delivery and payment by several weeks
and sometimes by months. Forward contracting
for very distant dates is less common and it is
usually possible for consumers of primary com-
modities to ensure continuity of supply by
buying goods to be shipped from the country
of origin within three months.
Example with charts and graphs of UK commodities the data which is taken of export in 2019 :-