Global commodity prices are on track for their biggest weekly high in more than 50 years and natural gas prices in Europe have hit a new record as the war in Ukraine triggers “exceptional moves” in raw materials from oil to wheat.
The S&P GSCI index, a broad barometer of global commodity prices, jumped 18% this week, putting it on track for the strongest rise since 1970, according to Refinitiv data. It is now at its highest level since 2008.
Oil prices in the United States reached the highest level since 2008 on Thursday (3). Everything from wheat to aluminum to coal has also soared, in a move that will have profound effects on global businesses and consumers.
“Events in Russia and Ukraine are triggering exceptional movements in commodity prices, which could have structural implications for long-term supply … but we also believe there are credible threats of demand destruction as commodity prices rise. melt,” said Dominic O’Kane, an analyst at JPMorgan.
West Texas Intermediate, the benchmark for US crude, rose 6% to more than $116 a barrel, while aluminum continued its relentless march, setting another record. Wheat was trading at levels last seen in 2008.
In Europe, wholesale natural gas prices reached almost 200 euros per megawatt-hour, while thermal coal — used in power plants — exceeded US$ 400 a ton. The huge gains will further increase the inflation that central banks are struggling to control, driving up the cost of living around the world.
Russia is one of the leading global suppliers of oil, gas, metals and grains. Western sanctions on Moscow have directly avoided natural resources, which in theory make them available for trade, but banks, insurance companies, shipping companies and trading partners are effectively boycotting the country to reduce legal and reputational risk.
“It is becoming clearer that the Russia-Ukraine conflict is having an impact on the demand for Russian oil,” said Warren Patterson, an analyst at ING. “Buyers are increasingly reluctant to commit.” Brent crude rose 3% to $116.28 a barrel. Russia exports 5 million barrels of oil a day — about 5% of global supply.
As a result of the self-sanction, traders are struggling to find other sources of supply in markets that are already tight due to increased demand as economies soared after the easing of pandemic restrictions. This is bringing down trade flows set on record and further fueling inflationary pressures.
“This rise will fuel a torrent of inflationary pressures as the building blocks of the global economy get increasingly expensive,” said Ehsan Khoman, head of emerging markets research at MUFG. “We believe that commodities are now marching to levels where demand destruction — through even higher prices — will become prevalent.”
With exports from Ukraine and Russia virtually at a standstill, wheat has soared, with Chicago futures at their highest levels since 2008, when a spike in grain prices sparked protests and riots in Africa, Asia and Latin America.
Wheat prices are up nearly 40% this month. Russia and Ukraine account for just under 30% of global wheat exports, shipping the grain to countries in the Middle East, North Africa and Asia.
All cargo ports in Ukraine are closed, and although Russian Black Sea ports are open, ship traffic has all but stopped. With many Ukrainian farmers recruited to fight and fertilizers and pesticides in short supply, there are concerns about this year’s crop as the country’s spring planting normally starts next month.
The war in Ukraine has also rocked the coal market, with benchmark coal prices in Asia rising above $400 a tonne.
“Buyers in markets like Europe, Japan, South Korea and China are struggling to deal with their exposure to Russian supply,” said Rory Simington, an analyst at Wood Mackenzie.
Earlier this week, shipping companies MSC and Maersk, which handle shipments to Russian aluminum producer Rusal, suspended cargo bookings to and from the country.
Additional reporting by Nic Fildes in Sydney
Translated by Luiz Roberto M. Gonçalves
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