Commodity Watch: Fragmentation, restriction and the flow of commodities
1 July 2025
Ahmad Al-Sati
<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" data-fr-image-pasted="true" src="/getContentAsset/e4db1c4c-2687-44cd-adbd-db1eb849e5d2/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.jpg?language=en" alt="Ahmad Al Sati" title="Ahmad Al Sati" class="fr-fic fr-dii" style="width: 180px"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York. <br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser. </p></div></span></div><hr><p>Annual trade restrictions (significant events impacting global trade) went up from 650 per year in ’17 to over 3000 in ’23. These restrictions are part of a larger geoeconomic fragmentation gaining traction since the 2008 financial crisis (see chart below), which is now impacting essential everyday products such as food, metals and critical elements.</p><p>Trade restrictions on commodities have increased price uncertainty and volatility. For one, commodities are trading at different prices in different geographies. That usually happens when commodities are trading within closed loop trading bloc rather than globally. More importantly, the World Bank recently concluded that traditional commodities’ cycles are breaking down. Typically, commodity cycles are multi-year events (sometimes part of a larger 10–15-year super cycle and sometimes not). Since Covid, however, the duration of cycles for 27 commodities has decreased by 50% relative to their 55-year average. The cycles became shorter and more volatile. At the same time, the overall trend has been higher, reflecting an ultimate mismatch between supply and demand that may drive prices up further.</p><p>Limiting global trade in commodities will only aggravate that pattern. Unlike finished or semi-finished products (iPhones or toys), commodity production cannot be onshored. Rather they must be produced where the weather and geology allow for it. In addition, producing commodities requires significant lead times (e.g., 18 years for a copper mine). Thus, changing trade flows post-fact, derails decisions made years if not decades ago with limited ability to quickly pivot. For producers, the dye is cast. Finally, for most commodities, production tends to be concentrated in a few locations- 65% of global agricultural output is concentrated in 3 countries. As a result, several commodities are subject to swing producers that can control the price and flow. </p><p>Two simulations by the IMF are illustrative. In one, Tungsten’s price went up 8x when South Africa (80% of Tungsten produced) traded with one cohort of countries and excluded another (think trading bloc war games). Tungsten is a key element in rockets, submarine missiles and steel among other things. In another simulation, a 3 standard deviation shock to US wheat increased prices by 2x in a fragmented market relative to an integrated market (i.e., price of bread will go up people will go hungry). Integrated trade systems matter to us all.</p><p>The trajectory of increased trade restrictions may not ebb in the near term. That means increased demand for: new trade routes, more capital to manage the uncertainty and a set of global players that can facilitate, manage and finance the shifting landscape. Capital solutions that provide liquidity across the supply chain will be paramount as producers seek new customers and customers attempt to manage the increased costs and ever-present uncertainty.</p><p><strong>Rising Geoeconomic Fragmentation</strong></p><p><strong><img loading="lazy" src="/getContentAsset/076ef427-3e18-40ac-8028-a0915b7f62dd/cb87803a-320c-480f-ab75-7b9029eaaf79/estimated-fragmentation-index.png?language=en" alt="estimated fragmentation index" title="estimated fragmentation index" style="width: 100%" class="fr-fic fr-dii"></strong><br></p><p><em>Source: Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effect, 2024, Jesús Fernández-Villaverde, Tomohide Mineyama, Dongho Song</em></p><p><em>The above is an extract from a LinkedIn post by Ahmad Al-Sati from 29/06/2025.</em></p>
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