Setting Prices by Word of Mouth

Prices for stocks, bonds, and currencies are set by billions of trades on public exchanges. Futures contracts for many commodities trade on exchanges almost around the clock. In contrast, deals for the delivery of commodities—raw materials such as coal, iron ore, fertilizer, gas, and some metals—are often made in private using benchmark prices determined by industry publications.

There are at least six price-reporting companies that cover energy and commodities markets. Their employees base their quotes on available bids, offers, and transactions as well as on phone calls and e-mails to market participants. It is a system that developed over more than 100 years. World trade in fuels and agricultural and mining products swelled to $5.67 trillion in 2011 from $1.34 trillion a decade earlier, according to data from the World Trade Organization. “Commodities markets have traditionally been a backwater that only specialists would have been involved with,” says David Wilson, director of metals research and strategy at Citigroup in London. “Clearly these markets haven’t changed with the times.”