Metal and bulk commodity prices have spiked as traders digest the implications of Russia invading Ukraine, with longer-term supply in question as buyers shun Russian products and shipping becomes increasingly difficult.
Since Russia invaded Ukraine on Feb. 24, copper prices jumped from $9,918.50 per tonne to $10,702.00/t on Mar. 4, while nickel, a key Russian export, skyrocketed from $25,233.00/t to $29,609.00/t. Gold, seen by some investors as a safe haven asset, increased from $1,925.00 per ounce to $1,961.10/oz, while palladium surged from $2,680.00/oz to $2,965.00/oz. Aluminum climbed from $3,435.00/t to $3,877.50/t over the period.
The U.S. and allies quickly responded to the conflict, slapping a slew of tough sanctions on Russia that have targeted influential people close to the Kremlin, major banks and Russia's central bank reserves. Some countries also banned Russian ships and aircraft from their ports and airspace.
The conflict has raised the specter of supply disruption and production cost increases under pressure from soaring energy prices, while forcing buyers to reconsider purchases from Russia, a major commodity producer.
"Global commodity markets are tightening and as a result the Bloomberg Commodity Spot Index continues to reach fresh record highs," said Ole Hansen, head of commodity strategy at Saxo Bank, in a March 7 note. "The stunning 9.4% surge this past week is the biggest since 1974 when the OPEC oil embargo triggered the 1973-74 oil shock."
Shipments of ammonia, which largely exit Russia through the Black Sea, have been suspended, Scotiabank fertilizer analyst Ben Isaacson said in a Feb. 28 note. Russia's Ministry of Trade also recommended on March 4 a temporary halt to fertilizer exports, citing issues over shipping logistics. A government spokesperson could not be reached by phone or email for comment on the export ban.
"We think the Russia/Ukraine conflict is exceptionally bullish for fertilizer equities," Isaacson said.
Russia is a major producer and exporter of fertilizers, which are crucial to high crop yields, and disruption of fertilizer exports also raises the prospect of lesser crop yields and higher food prices.
Meanwhile, major container shipping companies have temporarily suspended shipments to Russia, in another sign that companies outside Russia are unwilling to risk blowback from consumers and governments over the war.
"That would not halt deliveries of bulk commodities like coal or iron ore, but would halt finished metal exports like nickel and aluminum," Credit Suisse analyst Matthew Hope said in a March 3 research report.
For palladium, a key Russian metal export that is used in automotive catalysts, the closing of airspace in Europe and North America to Russian aircraft has added a wrinkle to logistics. The precious metal is typically transported by air, but Hope said the ban on Russian aircraft at many airports has forced exporters to reroute to other countries.
"So while logistics supply is difficult, there is currently no disruption in deliveries," Hope said, citing Credit Suisse experts.
And while metals have not been directly sanctioned, traders are in some cases avoiding Russian metals rather than run afoul of sanctions or be seen as supporting its invasion, according to analysts and media reports.
"We are currently witnessing some historic moves with Russia's growing isolation and self-sanctioning by the international community cutting a major supply line of energy, metals and crops," Hansen said.
The degree of self-sanctioning has come as a surprise to some analysts. Hope noted that "even Chinese banks have been reported as unwilling to engage in trade financing for Russian commodities."
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