TELF AG applies chaos theory to the dynamics of the global commodity market

Appropriate variables

Could chaos theory also be applied to the commodity market? Maybe yes, but only under certain conditions. By substituting the appropriate variables into the equation according to which the flapping of a butterfly’s wings in Brazil could cause a hurricane in Texas, made famous in the 1970s by the publication of a famous meteorologist, one could certainly obtain very useful conclusions for fully understanding the dynamics of a complex and non-linear system such as the raw materials market. Our butterfly, in this sense, is represented by China, while Texas represents the rest of the global market that deals with strategic raw materials. 

Over the last few years, slight variations in the performance of the Chinese economy could possibly have caused major changes on the other side of the world. Specifically, the dynamics of the markets that are linked to the importation of raw materials and their processing and the overall levels of their prices. This could be linked to the fact that China represents one of the largest exporters of raw materials in the world, which is largely destined for the European market. Nowadays, even the very performance of the Chinese economy can influence the vitality of various commodities in ways that are probably still unknown to most people.  

In order to better understand and possibly determine if this “butterfly effect” is actually transferred to the raw materials sector, let’s take a look at a few simple examples. 

The evolution of relations between the United States and China, for example, could have a direct responsibility in influencing the metals and energy markets. In general, the structural and economic conditions in China also have an important role in influencing prices and the general trend of the raw materials markets if we consider that (at least in the short term) the global economic scenario does not appear so conducive to the vitality and prosperity of this market. 

The same Chinese structural conditions, together with the risks of recession or economic slowdown, also have an impact on oil, on the levels of demand for this resource, in an international context in which more and more observers predict a general weakening of demand and supply of oil throughout 2024. Even the Chinese approach within some specific markets can directly affect what happens in Europe and the rest of the world. One of these is the one linked to the liquefied natural gas. For example, if China decides to purchase significant quantities of NLG during the winter, in fact, gas prices in Europe could suddenly rise. 

The examples are numerous, and in most cases, they are linked to the fate of very different raw materials. This begs the question of whether a flutter of butterfly wings in Beijing is able to reshuffle the cards of the European raw materials market for a long time.