Commodity prices, generally speaking, increased at close to the fastest pace for over half a century last week and, subject to events in Ukraine and Russia, another week of volatile trading lies ahead for investors, economists, employees, politicians and the wider community globally.
Market conditions will be very uncertain today as commodity prices will take a hit if there are any further developments of a limited ‘ceasefire’ to allow ‘humanitarian corridors’ for aid and evacuations to be carried out in and around two Ukrainian cities.
But that’s unlikely, especially given the stoppage was for five hours and Russia has promised to bomb cities into ’submission’.
That will increase the volatility around commodity prices which lead the way last week higher, battering markets, buyers and traders alike.
Unlike many other exogenous economic events where policy changes can be made quickly to try and prepare an economy or soften the impact, what we are going through now is a series of repeated blows from the same source with little hope of controlling the situation for quite a while to come.
The Russia’s invasion of Ukraine and the reaction from the West with harsh sanctions whose real impact was not appreciated are now having a much wider and deeper impact.
Russia is being isolated financially and businesswise and for the country’s most important exports, that’s have a tremendous knock-on impact.
That has put a rocket under commodity prices last week and prospectively, the week ahead. Australia exports many of these commodities and the price surge has sent the value of the Aussie dollar heading towards 74 US cents for the first time six months.
Sanctions on Russian financial institutions, including the country’s central bank has saw many dealers, traders and commercial groups sanction Russia (and its ally, Belarus) on their own.
Shipping companies, banks, insurers, all types of businesses (from oil buyers to steel companies, to wheat buyers in Europe, farmers in Asia using Russian phosphate fertilisers, luxury goods companies suspending or ending transactions, car makers, plane makers like Airbus and Boeing. The list is growing by the day.
Payments groups Visa and Mastercard have now stopped dealings with Russia.
Russia (and Ukraine and Belarus) is a major producer of some key commodities – oil, gas, nickel, gold, platinum, wheat, palladium, neon gas, sunflower oil, chemicals and processed oil products and its prices for these that are showing the greatest volatility.
The rouble is down more than 45%, hundreds of billions of dollars of western investments in Russian companies are worthless or worth very little and there is little chance of that being reversed until Russia is no longer an international pariah.
So last week oil prices surged with West Texas Intermediate rising to $US116 a barrel leaving it up 25% for the week on supply concerns including the US considering a ban on Russian oil imports, offsetting reports Iran and the US may soon reach a new deal which would unlock Iranian oil exports.
The price of Brent crude also rose by around 25%. Copper prices hit an all-time of $US4.9290 a pound on Comex in New York to be up 9.6% for the week, Comex silver rose 6.5% to $US25.78 an ounce and Comex gold – up 4.5% for the week, ending around $US1,974 an ounce, nickel, platinum and palladium all soared – the latter also hitting an all-time high.
Palladium jumped more than 9% on Friday to be up 26.6% for the week, closing at $US2,990 an ounce. Russia is a major producer (But when Chalice mining’s Gonneville project starts in a couple of years, there will be lots of palladium and platinum.
Platinum rose a more sedate more than 4% to $US1,226 (and more than 6% for the week). These rises will push up the price of electric vehicle and ICE vehicle exhausts.
Analysts have no clue what will happen next except that volatility in price and sentiment will be with us for as long as Ukraine is being attacked or suppressed by a Russian force of occupation and the almost certain rebellion that will bring.
While there may be an exemption from the trade restrictions for oil and gas exports (but the Americans are in a serious debate about changing that stance), insurers and dealers have decided that the risks, reputational or otherwise, of continuing to do business with the country are not worth the benefits.
Oil prices rose to just shy of $120 a barrel on Thursday, the highest level since 2012, while wheat prices have risen around 50% since the start of the invasion, and rose over $US13 a bushel on Friday and closed at an all-time high of $US12.09 a bushel.
Canada will benefit from the sanctions on Russia and Belarus, the second and third biggest producers of potash globally, a component of fertiliser. Canada is top and its companies are already eying a boost to output.
Iron ore prices closed just over $US156 a tonne for April Pilbara style 62% Fe fines delivered to northern China by the shipper. The price rose above $US162 a tonne at one stage in trading on the Singapore Exchange’s commodity markets.
The same market saw the futures price of Australian hard coking coal rise above $US600 a tonne on Friday – a record, while the price of Australian thermal coal on the Newcastle ICE index ended the week just over $US418 a tonne after touching a record $US440 a tonne on Thursday.
A prolonged occupation of Ukraine and continued violence will boost commodity prices to the point where the world economy might buckle and slump into a recession.
