Raw materials, “last bastion of wild capitalism”

The ring of the London Metal Exchange, the global center for industrial metals trading, in London in September 2021.

The price of oil multiplied by four in two years, that of gas by ten over the same period, wheat by two and a half… Since the invasion of Ukraine by Russia, on February 24, the prices of raw materials have soared at record speed and the world finds itself once again at the mercy of their vast oscillations. The shock is felt everywhere, starting with electricity and gas bills. Global growth should be reduced by at least one point, maybe more, and there is even talk of a recession for 2023.

Logical and inevitable consequence of the law of the market? Or obvious signs of profound dysfunctions? Commodity trading, which is highly political, has not always worked this way. “The most incredible thing about this case is how governments have lost control of it in forty years”says Javier Blas, co-author of a fascinating investigative book on the subject (The World for Salewith Jack Farchy, Penguin, untranslated). Philippe Chalmin, professor of economic history at Paris-Dauphine University, who on the whole supports the current system, puts it in his own way: “In forty years, all raw materials have become commodities that are traded like any other product. »

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Fixed prices, which were once the norm, have disappeared. This deregulation, accompanied by an intense financialization but also a strong opacity, has given way to a new world, dominated by a handful of trading companies that are as little known as they are powerful. Welcome in “the last bastion of savage capitalism [swashbuckling capitalism] »as Mr. Blas calls it.

The great financialization of commodities

On April 20, 2020, as the world plunged into the Covid-19 pandemic, an unprecedented phenomenon stunned oil traders. On the New York Mercantile Exchange, the price per barrel closed at −37.63 dollars (−33.98 euros). A negative price, unheard of! Knowing that each contract that is exchanged includes 1,000 barrels, this means that sellers agreed, that day, to pay 37,630 dollars to… get rid of their oil.

The explanation lies at the junction of financial speculation and the physical reality of this trade. Back in 1983, in the United States. For the first time, oil becomes a financial product. A “future contract” is created on the West Texas Intermediate, which is the American standard for a certain grade of oil. For each contract, a seller undertakes to deliver, on a date fixed in advance, oil at a predetermined price. It is not a financial contract unrelated to reality: at maturity, the oil must be physically delivered to Cushing, Oklahoma, where many American refineries are located.

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