On 16 November, headlines reported that metals prices had plummeted, leading a broad sell-off in commodity markets as traders and investors dumped risky assets, concerned about inflation in Asia and sovereign debt in Europe.
The following day, statistics from the UN's Food and Agriculture Organization showed huge price rises in agricultural products. The data revealed that the global bill for food imports will top $1000bn this year for only the second time ever, taking the world dangerously close to a new food crisis.
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If prices and sentiment are unpredictable, one trend is not: the inexorable move to the East. Asian demand for copper has almost doubled in 10 years; China's consumption of oil has almost doubled in the same time period.
This shift is clearly visible in trading volumes. On a single day earlier this year, 47% of global copper trades took place on the Shanghai Futures Exchange (SHFE), against 42% on the London Metal Exchange (LME). And it is not just the metals markets; according to data from the World Federation of Exchanges, Asia now accounts for almost two-thirds of commodity derivatives volumes. Chinese markets such as the SHFE, the Dalian Commodity Exchange and the Zhengzhou Commodity Exchange are benefiting from the move eastwards, alongside players such as India's Multi Commodity Exchange and the Singapore Commodity Exchange.
The Americas are the biggest losers in terms of volumes. The region's share of global trading in commodity derivatives has plunged by almost half, from 40% in 2008 to 23% in 2009, while Europe, the Middle East and Africa's share has dropped from 16% to 12%.
Regional breakdown of exchange-traded derivatives
Another certainty of the commodity markets is the global regulatory push - and it is having drastic effects. The requirements for more commodity derivatives to be traded on exchange and to be centrally cleared in the wake of the financial crisis has led to a 78% fall in the value of notional outstanding over-the-counter (OTC) derivatives since June 2008. OTC trading volumes have dropped by 65% to $2900bn in the same time period. Exchange-traded derivatives, meanwhile, rocketed by 123% between 2007 and 2009, with volumes rising from $6700bn to $14,800bn.
Figures suggest that the drive, led by the US's Commodity Futures Trading Commission and other global regulators, to put a cap on position limits in the derivatives markets, has led many market participants to build out the less 'constrained' and lucrative areas of the commodities business. Just as OTC trading has dwindled, investment banks have increased their presence in the physical markets.
In August 2009, Morgan Stanley was given permission to trade with Dubai Gold Securities, which will enable the investment bank to take physical possession of gold; it joins JPMorgan and Goldman Sachs, which already take delivery of gold when their futures contracts mature.
The acquisition of metals warehousing facilities in the early part of this year suggests that both Goldman and JPMorgan are planning to continue expanding their physical metals business. Goldman bought US-based Metro International for $550m, and JPMorgan bought UK firm Henry Bath, one of the jewels from JPMorgan's $1.7bn acquisition of RBS Sempra from Royal Bank of Scotland.
Share of commodity exchange derivatives volume (2008: 1.78 billion)
Share of commodity exchange derivatives volume (2009: 2.52 billion)
Astounding ascent
The rise in physical assets in the past year or so is startling. According to data from US-based research house Celent, between 2008 and the end of 2009 - the last point for which there are figures - JPMorgan's physical assets had risen almost three times from $3.6bn to $10bn and Morgan Stanley's had more than doubled from $2.1bn to $5.3bn. Most surprisingly, UBS - which sold off huge swathes of its commodities business to Barclays Capital and JPMorgan in the wake of the financial crisis - has emerged as the house with the most physical assets, growing them from $9bn to $16.2bn in the same time period.
Some of the physical assets will be used to create investment products such as exchange-traded funds to satisfy growing demand from investors for exposure to physical products, rather than futures or equities of commodity companies. In the metals markets, for example, investors are keen to buy metals such as copper and tin, certain that prices are sure to rise - notwithstanding a few volatile swings along the way - as China's huge appetite for raw materials and slower mine output squeeze supplies.
This will not please policy-makers, who have blamed such investment products and the behaviour of speculators for previous price spikes. If they occur again, banks may find regulators trying to bar the door to the physical markets.
