Benchmark price (BP) is the price per unit of quantity of a commodity traded in the international marketplace, set by the country or producers’ organization that consistently exports the largest quantity or volume of the commodity or in a marketplace such as the London Metal Exchange. This price is set periodically, usually monthly and serves as a guideline for international trade in the commodity.
The term “benchmark” can be applied to many aspects of public concern, such as quality, services, attitudes and others, denoting the highest standards achieved in such spheres. For example, a school or university could be cited as setting the benchmark for education. A hotel could be cited as setting the benchmark for quality of service. The phrase “international benchmark price”, however, is synonymous with prices of commodities in international trade.
Benchmark prices apply to all commodities. An example is the benchmark prices that apply to crude oil in the international marketplace.
It is not mandatory for exporting countries or importing countries to use the benchmark price as international trade is based on favourable prices. Traders use the benchmark price as a guide for spot trading and trading in commodity futures.
The benchmark price is often the most important consideration when determining export prices.
A commodity will sell for more or less than the benchmark price depending on how it compares to the benchmark commodity (percentage of undesirable components such as sulfur, for example) and where it is to be delivered, if other than the benchmark price’s delivery point.
- ^“LME Official Price”. London Metal Exchange. Retrieved 25 November 2013.
- ^“About fuel prices”. Australian Competition & Consumer Commission. Retrieved 25 November 2013.