Industrial raw material prices have surged sharply since Russian troops entered Ukraine on February 24, with commodities ranging from crude oil to coal, steel, tin and soldering material lead, among others, turning dearer.
The deepening of the Russia-Ukraine crisis has seen the US, Europe, Japan and other regimes imposing economic sanctions on Kremlin. Fears over the impact of the sanctions have led to price surges for a whole lot of commodities.
Besides, the suspension of operations at Port of Odessa in Ukraine, bringing to a halt shipments of all cargoes, has aided the uptick in prices of raw materials, including food and feed related .
In particular, commodities such as crude oil, nickel, palladium, aluminium, wheat, sunflower oil and corn have seen prices skyrocketing since Russia — a key exporter of metals and wheat — and Ukraine — which has a significant share in exports of sunflower oil, wheat and corn — are major suppliers of these commodities across the globe.
A fair indication of the spike in raw materials prices is the rise in the London Metal Exchange (LME) index by nearly 10 per cent last week to 5,418.30 currently. It had touched a record high of 5,505 on March 7 before easing. Overall, the index comprising aluminium, copper, nickel, lead, zinc and tin has gained a little over 20 per cent year-to-date.
Similarly, the CRB index consisting of 19 commodities, including aluminium, copper, cocoa, coffee, sugar, soyabean, wheat, nickel, gold and crude oil, has gained over 10 per cent in the past week to 328.76. The index is up 33 per cent year-to-date.
S&P GSCI index, which measures returns in the commodity sector and includes 24 commodities across the energy sector, industrial metals, precious metals, agricultural produce and livestock products, has increased by almost 17 per cent in the past week. Year-to-date (YTD), the index is up nearly 50 per cent.
Buyers turn jittery
Analysts say prices of commodities have soared mainly as some buyers have panicked. For example, in the case of wheat, buyers have queued up to buy the foodgrain from the US, Argentina, Canada and Australia. Also, in Asia, some of the buyers are looking at India and Pakistan, resulting in prices rising sharply.
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A jittery market has resulted in nickel trade being suspended by LME as prices more than doubled to $100,000 a tonne. Russia accounts for 10 per cent of the global nickel supplies. The metal is used as an alloy to produce stainless steel, for coating steel to prevent its rusting, in mobile phones, medical equipment and batteries.
Sanctions against Russia
According to Fitch Solutions Country Research and Industry Risk, nickel demand was estimated to increase this year and keep prices elevated since the global economy is recovering from the Covid pandemic.
With LME suspending trading in nickel, the metal last quoted at $48,201 a tonne. It has gained 88 per cent in the past week and 130 per cent YTD.
Aluminium is another metal that rose to a record high following the Russia-Ukraine crisis. Though prices have eased to $3,498 a tonne from a new high of $4,103 on March 7, it is still 24 per cent higher YTD. Russia accounts for six per cent of the global aluminium production.
According to ING Think, the economic and financial analysis arm of Dutch multinational financial services firm ING, sanctions on Russia’s access to SWIFT and certain Russian banks have caused great confusion among market participants about trading metals with the country. This has led to the flareup in the base metals market.
Coal, iron ore
ING Think said Russia might stop exporting aluminium and nickel and even rare metals such as titanium.
Among other raw materials that have surged are coal, both thermal and metallurgical, and iron ore. Metallurgical coal prices have increased by over 50 per cent since the geopolitical crisis deepened.
Currently, benchmark Newcastle coal price on the Intercontinental Exchange is quoted at $405 a tonne. Spot coal from Australia is quoted over $500, according to reports. At China’s Dalian Commodity Exchange, hard coking coal for May delivery on Wednesday was quoted at 3,138.5 Chinese yuan a tonne ($496.79). Thermal coal for delivery in May at the Zhengzhou Commodity Exchange was quoted at 879.60 yuan a tonne ($139.24).
Iron ore prices have gained over 10 per cent in the past week. Prices for ore with 63.5 per cent iron content are ruling at $156.50 a tonne, up nearly 35 per cent YTD. Iron ore with 62 per cent ferrous content has turned 12 per cent costlier in the past week at $160.96 a tonne. It has gained over 40 per cent YTD.
The rise in iron ore and coal prices has led to a 2.5 per cent rise in steel rates globally.
Flaring crude oil
Prices of some of the commodities are increasing since freight rates are expected to be hiked in view of crude oil skyrocketing. With the US banning Russian crude oil and gas, the situation has turned grim, though some of its allies such as Germany are against such a ban.
On Wednesday, Brent crude oil topped $130 a barrel, while WTI crude oil hovered near $124. ING Think does not rule out Russia — the second largest exporter of crude oil — halting crude and gas exports on its own accord, though it might not resort to wholesale ban on the exports.
This could affect European countries more, as they depend on Russian energy commodities more than other countries. In that case, the situation could worsen, say analysts.