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Commodity prices surge as Russia-Ukraine war tests raw material supply chains

March 9, 2022

Commodity prices surge as Russia-Ukraine war tests raw material supply chains

Global commodity prices have surged to record heights as investors and buyers alike shun Russia over fears further embargoes and political sabre-rattling will hurt exports.

Global commodity prices have surged to record heights as investors and buyers alike shun Russia over fears further embargoes and political sabre-rattling will hurt exports.

Last week, the Bloomberg Commodity Spot Price Index jumped 13% to hit a 7.5-year high as fighting in Europe continued to escalate.

It is the largest weekly gain recorded since the index’s creation back in 1960.

US crude oil briefly hit $158.73 per barrel – its highest price since the GFC – on Friday, while Brent Crude has put on around 10% in the past week as the threat of possible US and European embargoes on Russian oil increases.

Fuel prices in Australia responded in kind, with Australian Institute of Petroleum figures showing the national average price for unleaded petrol ticked up 3.3 cents to a new record high of 183.9 cents a litre.

Gold chased investors’ fear levels upwards, topping US$2000 per troy ounce for the first time since August 2020 as panicked buyers sought to build up a stockpile of the ‘safe haven’ asset.

Goldman Sachs predicts the yellow metal will continue to climb to reach US$2150 per troy ounce as sanctions on Russia continue to bite.

Wheat prices rallied more than 40% to hit 14-year highs as the ongoing violence threatened to disrupt supply chains in Russia and Ukraine, which collectively produce approximately 30% of global wheat exports.

Steel, aluminium and nickel prices have also been swept up in the conflict, with little prospect of relief from this upward pressure on the horizon.

Equity investors – especially those in Europe – are already feeling the impact of these gains, CommSec market analyst Tom Piotrowski noted.

“Over the course of the week, the German DAX fell by 10% and the STOXX600 index was down by around 7%,” he said on Monday. “There’s a very clear delineation between stocks that are doing well, and stocks that aren’t.

“Commodity-facing stocks are outperforming at the expense of financials generally. 

“There’s a couple of reasons for that. In Europe, it’s sometimes by association with Russian-facing exposure, but also more broadly as far as a theme, you are not only seeing falling long-term interest rates, you are seeing that relationship between short and long-term relationships narrowing, which is compounding that negativity for lenders.”

In Australia, energy and mining stocks fared well amid broad-based losses on Monday before dipping during trade on Tuesday, with the ASX 300 Metals and Mining index giving up 3.58% in the session.

Gold miners, however, fared better, with the ASX All Ordinaries Gold sub-industry index actually lifting 1.2% on Tuesday.

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