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What Are Industrial Commodities?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 April 2014
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Industrial commodities are bulk goods that can be traded within an industrial market, often through regulated trading commissions or exchanges. Some common types of industrial commodities include metal ore, fossil fuels, textiles, and foodstuffs. In some cases, manufactured goods, rather than raw materials, can also be considered commodities. The trading and exchange of industrial commodities is a central factor in both regional and global economies, and may be the primary focus for some investors.

In most markets, the trading of industrial commodities is central to the the manufacture and availability of goods. Creating central exchanges for certain types of commodities allows all potential buyers and sellers in the market access to a pool of goods, and may also help create standards for quality. Most industrial commodities are goods that are similar or identical regardless of the source; for instance, copper ore that is considered a commodity will have identical chemical and metallurgic properties, regardless of the source and method of extraction. The homogeneity of industrial commodities allows a market-wide price to be set for single types of raw goods, which can fluctuate freely based on supply and demand levels rather than qualitative differences in the good.

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There are many different types of industrial commodities. The building blocks of industry, commodities provide the raw materials that allow for the creation of manufactured goods or the operation of factories and industrial plants. Metal commodities may include both base and precious metals, such as iron, aluminum, gold, and silver. Fossil fuels, such as coal, petroleum, and crude oil, make up an enormous segment of the industrial commodities market, since most industries require fuel for transportation and operations. Textiles, like cotton or wool, and raw foodstuffs, such as fruit or meat, can also be important commodities for commercial industries.

Certain manufactured goods may also be considered industrial commodities, but price-influencing factors may be more complex than with raw materials. Wood pulp, for instance, is a critical commodity in the paper industry, but paper products may also be considered commodities by certain markets. Similarly, while raw wool or cotton may be a commodity, bolts of knitted or printed cloth qualify as both manufactured goods and raw components of the garment and upholstery industries. Trading exchanges often try to break down manufactured commodities into simple, narrow categories, so that homogeneity can be maintained as closely as possible.

Trading exchanges oversee the movement of industrial commodities from supplier to purchaser, and are often tightly regulated to ensure fairness, legality, and standards of quality. Not all commodities are sold through enormous exchanges, however; buying oranges at a farmer's market is one simple form of a commodities exchange in the food industry. Official trading exchanges, called commodity ETFs or ETNs, tend to focus on goods in a specific industry, such as agricultural goods or the oil market.
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