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What Is Raw Materials Trading?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 16 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Raw materials trading involves the exchange of bulk raw materials, often internationally. These make up a key component of production and assembly and are the backbone of manufacturing. Firms can trade directly with each other, or work through brokers and specialists who mediate agreements. Traders can also use derivatives based on such products to gain value from transactions without dealing directly in raw materials. Prices for major commodities like grain and metal may be reported in the financial media, while other trades attract less public interest.

Firms involved in this kind of activity usually focus on specific kinds of products, like chemicals or metals. They specialize in locating raw materials, finding the best price and the best location for given clients. Working through a broker or specialty firm can sometimes allow companies to access the best pricing, even over that negotiated directly with providers. Specialists in raw materials trading may be able to get bulk discounts, special shipping considerations, and other benefits to make their pricing highly competitive.

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Companies in need of raw materials can often work through agents and brokers to place orders. They specify what they need and the quantity. If there is some flexibility, the broker can discuss the situation and determine how best to frame the order. For example, a company might be able to accept a related chemical for a specific application and receive a lower rate than it would for a product currently in high demand. Brokers make arrangements to facilitate trades and delivery of the raw materials.

A number of associated industries can be involved in raw materials trading. In addition to producers and manufacturers who make and need the materials, along with brokers and agents to connect them, other companies may handle packaging, shipping, and customs negotiations. As materials move through the supply chain, they may be inspected, evaluated, and handled by a variety of personnel. They check for quality, regulatory compliance, and other issues. Companies buying milk powder, for example, may want to be assured that it has been checked for contaminants that might make people ill.

Careers in raw materials trading can requite travel to visit clients, including those in other countries. It can help to know more than one language, as this may smooth negotiations, depending on where people work and the kinds of materials they handle. In some cases a license may be required for activities like providing brokering services for raw materials trading. Traders in this situation also need to meet regulatory requirements like following ethical guidelines.

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