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Commodities Corner: Russia’s move into Ukraine is boosting commodity prices — here’s what’s at stake

Russia’s move into Ukraine has the potential to affect not just oil and natural gas but several commodities, including palladium, nickel and wheat — all of which were moving higher Tuesday.

“Escalating tensions between Russia and Ukraine are putting a strong bid in for commodities,” said Chris Blasi, president of precious-metals dealer Neptune Global.

“Depending on the specifics of any proposed sanctions, should they be implemented, they could prove counterproductive,” he told MarketWatch. “If not thoughtfully constructed, the pain felt by Russia may be dwarfed by the inflationary pain the rest of the world could experience from rising commodity prices.”

Russian President Vladimir Putin said on Monday that he recognized the independence of pro-Moscow separatist factions in Luhansk and Donetsk, Ukraine and ordered troops into the breakaway regions.

The conflict between Russia and Ukraine has contributed to a rally for a number of a commodities over the past few weeks as it has the potential to have a wide impact on the commodities market.

Russia is a major producer of oil, natural gas, palladium, nickel, and wheat, while Ukraine is a major corn and wheat exporter and an important transit route for Russian natural-gas flows to Europe.

Oil

Both U.S. and global benchmark oil prices have recently touched their highest levels since about September 2014.

“Global inventories have already been tightening before the latest developments in Ukraine,” said Marshall Steeves, energy markets analyst at IHS Markit. “So $100 oil had been priced in to the extent that tighter inventories warrant it.”

“Further tensions and a ratcheting up in troops could support further gains. It remains to be seen how far this situation deteriorates,” he told MarketWatch.

In Tuesday dealings, March West Texas Intermediate crude
CLH22,
+1.41%

CL.1,
+1.41%

traded at $93 a barrel, up $1.93, or 2.1%, ahead of the contract’s expiration at the end of the New York Mercantile Exchange session. Prices the U.S. benchmark had settled at $95.46 on Feb. 14, the highest since September 2014. April Brent crude
BRN00,
+1.51%

BRNJ22,
+1.51%

tacked on $1.69, or 1.8%, to $97.08 a barrel on ICE Futures Europe, poised for the highest front-month contract finish since September 2014.

Natural gas

Germany on Tuesday took steps to halt the process of certifying the Nord Stream 2 natural gas pipeline from Russia, according to the Associated Press.

Germany halted the Nord Stream 2 pipeline, “despite the fact that it had never even entered service,” said Steeves. “But uncertainty after Russian President Putin recognized two breakaway Ukrainian republics persists and energy markets are the beneficiary.”

For natural gas, the U.S. weather forecast is “nominally supportive with temperatures expected to trend below normal over the coming week, though conditions are not likely to be frigid,” he said.

March natural gas
NGH22,
+1.40%

was trading 11.9 cents, or 2.7%, higher at $4.55 per million British thermal units, looking to post its first gain since Wednesday.

With Germany effectively freezing the approval process for Nord Stream 2, S&P Global Platts Analytics is removing the pipeline from its forecast, as it was previously expected to start up in October 2022 of this year, said James Huckstepp, manager EMEA Gas Analytics at S&P Global Platts.

This has reduced assumption for Russian gas flows to Europe and led to an increase in Platts Analytics global gas and liquefied natural-gas price forecasts over the next two-years, “with reverberations across the wider commodity complex, including power, coal, and oil,” Huckstepp said.

Palladium and platinum

Russia “dominates” the market in the mining of platinum and palladium, said Neptune Global’s Blasi, adding that “there is no spare capacity to meet industrial demand for them. “

Platinum and palladium prices have bee rallying since the start of 2022 and their steep price rise “would be expected to continue should the Ukraine situation deteriorate further, and the West intercedes aggressively,” he said.

In Tuesday dealings, the most-active April platinum contract
PLJ22,
+0.47%

tacked on $10.10, or 0.9%, to $1,086.90 an ounce, trading more than 12% higher year to date.

March palladium
PAH22,
+1.27%

traded at $2,375.50 an ounce, up $37.60, or 1.6%, in Tuesday trading, up over 24% for the year so far.

Nickel and aluminum

Prices for nickel have seen some gains so far, while aluminum has barely budged, but both have the potential to see a bigger influence from further developments in the Russia-Ukraine crisis.

Nickel prices on the London Metal Exchange traded Monday at their highest levels in more than a decade and has climbed by 18% since the start of the year, according to Barron’s.

On Monday, nickel’s cash bid price was at $24,865 per metric ton, up 1.5% from Friday’s settlement. Aluminum’s bid price was at $2,685, unchanged from Friday, according to Dow Jones Market Data.

“Certainly the main beneficiaries in the base metals space are [aluminum] and nickel, with Russia such a big producer of those metals,” said Al Munro, LME desk at Marex, in a Tuesday note.

Statista ranked Russia’s Norilsk Nickel as the world’s top nickel producing company in 2020 based on production volume. United Co. Rusal International, meanwhile, is known as being among the world’s largest aluminum producers.

Wheat and corn

Sal Gilbertie, president and chief investment officer at Teucrium Trading, put Russia and Ukraine’s impact into perspective on Tuesday.

“Russia and Ukraine combined would create the world’s top exporter of wheat, accounting for almost one of every three bushels of global wheat exports,” he told MarketWatch.

“The two countries combined also account for almost one out of every five bushels of global corn exports, he said, and “Ukraine is the world’s third largest exporter of corn outright.”

“Fears of export disruptions are what are supporting prices right now, but there has been no actual disruption of exports or of offers to export wheat and corn from the Black Sea as of yet, which is what is keeping prices from moving dramatically higher from here,” said Gilbertie.

The most-active May wheat contract
WK22,
+5.53%

rose 35 3/4 cents, or 4.5%, to $8.39 3/4 a bushel in Chicago and May corn
CK22,
+3.26%

rose 15 cents, or 2.3%, to $6.67 3/4 a bushel.

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