Russia Ukraine Conflict could trigger further crisis in global commodity prices; expect greater spike if war continues

By Neha Anand  

Strong rally in commodity prices, especially in crude oil has taken the World economy by storm. International benchmark Brent crude touched highs of USD 139 a barrel recently before correcting to sub USD 100 a barrel.

Having managed to swing above the USD 123 mark, the prices of crude are edging higher, once again and it will be difficult to estimate the movement of this 'Black-Gold'.

It is interesting to note that in the last two years rally in crude oil (Brent and WTI crude) has been accompanied by hefty returns in commodities across various categories.

The glittering gold recently surpassed all time high levels of USD 2060/oz and has given investors a 25 percent return between March 2020 and March 2022. On the other hand, Comex silver surged 85 percent to levels over USD 27 an ounce early this month.

Base metals, meanwhile, have been under everyone's radar, amid uncertainties surrounding a-month long Russia-Ukraine conflict and long list of sanctions being imposed on the former.

Low inventories in London Metal Exchange (LME)/Shanghai Futures Exchange (SHFE) warehouses along with supply concerns from Russia is underpinning metal prices. It is to be noted that Russia accounts for about 6 percent of global aluminium supply. Supply uncertainty had pushed aluminium to a record high of USD 4,073.50 on March 7. This has managed to mark nearly 164 per cent of returns in the metal in last two years.

Meanwhile, nickel and zinc have given returns of 125-200 percent during this period while copper prices have doubled from levels of USD 4,900/tn in March 2020 to over USD 10,700 a tonne earlier this month. Russia accounts for 10 per cent of the World's nickel supplies and about 3.5 percent of copper.

Agricultural commodities have also piggybacked on the momentum and given significant returns from March 2020 till now.

Chicago Board of Trade (CBoT) wheat has surged nearly 130 per cent in last two years, having touched 14-year highs earlier this month. Supply disruptions because of the ongoing war between Russia and Ukraine - which are considered as Europe’s breadbasket - have triggered panic among wheat-importing nations.

They combined export from the warring counties accounts for nearly one-third of the global wheat every year. Wheat prices have increased by 2.1 percent globally, reflecting uncertainty around global supplies from Black Sea ports.

In the oilseeds and edible oil category, CBoT soybean and Malaysian Palm Oil futures have surged to the tune of 100-200 percent in last two years. Even canola futures surged to contract highs tracking firmness in crude oil and strength in rival oils.

It is to be noted that oilseeds and edible oils around the globe have contributed majorly to pushing World Food Prices to historic levels.

FAO Food Price Index averaged 140.7 points in February, up 3.9 percent from January, 20.7 per cent above its level a year earlier, and 3.1 points higher than reached in February 2011. FAO Vegetable Oils Price Index led the increase, rising 8.5 per cent from the previous month to reach a new record high, mostly driven by increased quotations for palm, soy and sunflower oils. 

See Zee Business Live TV Streaming Below:

Ukraine's 2022 sunflower seed harvest could decrease by 42 per cent to 9.6 million tonnes due to a sharp decrease in the sowing areas following Russia's invasion, APK-Inform agriculture consultancy said late Wednesday. Ukraine is the world's largest sunflower seed grower and sunflower oil exporter. APK-Inform said the 2022 sowing area under sunflowers may fall to a minimum level for 13 years, amounting to about 4.2 million to 4.4 million hectares, or 35 percent down vs 2021 levels.

Edible oil experts see firmness continuing in oilseed and edible oil space in the backdrop of production related concerns and rising demand from China.

Even Raw Sugar and Cotton futures prices in global markets have yielded returns to the tune of 75-160% between March 2020 and March 2022.

Most of the Commodity experts are of the opinion that although commodity prices across the categories have reached their peak, there is most likely room for more upside in case the Russia-Ukraine conflict doesn't come to an end immediately.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)