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How Russia’s Invasion of Ukraine Rocked Commodity Markets

The war in Ukraine has wreaked havoc on the global economy as the world reels from high energy and metal prices. As the war rages, DW looks at the fallout on commodity markets since the February 24 invasion.
Aluminum prices soared after Australia banned exports to Russia of key raw materials used to make the metal.
Aluminum prices soared after Australia banned exports to Russia of key raw materials used to make the metal.

The war in Ukraine has wreaked havoc on the global economy as the world reels from high energy and metal prices. As the war rages, DW looks at the fallout on commodity markets since the February 24 invasion.

Just as the first Russian tanks and military vehicles rolled into the Ukrainian territory on February 24, commodity prices surged with oil breaching $100 (€91) a barrel, aluminum climbing to a record high and wheat prices soaring to a nine-year high.

The surge reflected traders’ worries that the war involving Russia — a key supplier of oil, natural gas, coal, aluminum and wheat — and Ukraine, also a key exporter of wheat and oilseeds, could stoke inflation, further disrupt supply chains and derail the global economic recovery.

A month into the conflict, most of those fears are coming true. Inflation has shot up mainly due to higher energy and food prices, a shortage of wheat is deepening the food crisis in countries like Egypt, and economic growth is stalling, prompting economists to cut global growth forecasts.

“Over time, global commodity trade flows will need to adapt to some or all of Russian/Ukrainian supply being unavailable, whether due to infrastructure damage, sanctions or ethical concerns,” major commodities trader Glencore said in its annual report last week.

Aluminum’s sanction woes

Aluminum prices have been skyrocketing over the past month, surpassing the peak they hit in 2008 during the global financial crisis. Traders are fretting over supplies from Russia, which produces around 6% of the world’s aluminum supply.

The most recent surge in prices came after Australia decided to ban exports to Russia of alumina and bauxite, which are used to make the metal. Australia supplies almost 20% of Russia’s alumina. Canberra’s move is expected to further disrupt production at Russian aluminum behemoth UC Rusal.

“Although the ban on bauxite exports is immaterial given that UC Rusal does not import any bauxite from Australia, the ban on alumina exports will have a material impact on the company,” Uday Patel of Wood Mackenzie wrote in a note.  

“It is becoming increasingly likely that the only option for UC Rusal to source alumina will be via purchases through Chinese entities. One possible outcome could be Chinese buyers purchasing alumina and redirecting sales via eastern Russian ports. However, this poses a significant political challenge for China and its trading relationship with the rest of the world,” Patel said.

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