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Commodities most impacted by Ukraine invasion

Commodities

Countries and jurisdictions across the world are imposing sanctions on Russia in light of its invasion of Ukraine, which is having a ripple effect on global commodities.

Prime Minister Scott Morrison said Australia would restrict trade on industries including transport, telecommunications, minerals, energy, and oil and gas in the Donetsk and Luhansk regions of Ukraine now recognised as independent by Russia.

The European Union (EU) is prohibiting trade of specific goods and technologies in Russian oil refining along with further restrictions of the provision of related services.

“By introducing such export ban, the EU intends to hit the Russian oil sector, and make it impossible for Russia to upgrade its oil refineries,” the EU said in a statement.

Other countries such as Japan, New Zealand, Germany, the United States and Taiwan have also imposed sanctions on Russia.

According to S&P Global Platts, crude oil prices jumped over 8 per cent on February 24 hours after the Ukrainian foreign minister said Russia had launched a “full-scale invasion”.

S&P said the ICE April Brent futures contract was up $US7.95 ($11) per barrel (b) early in the day from the previous close of $US104.79/b. Russia is the world’s second biggest exporter of crude oil behind Saudi Arabia.

The London Metal Exchange nickel price rose above $US26,000 per tonne on February 24. The nickel price has been trending north for months and this trajectory could continue in the wake of Russia’s invasion of Ukraine.

According to Guangzhou-based Huatai Futures, Russia’s nickel output amounted to approximately 146,000 million tonnes in 2021, or 5 per cent of the world’s total supply.

Wood Mackenzie believes the conflict could also impact coal prices.

“Having to replace Russian coal volumes would result in a price shock to global coal markets and a coal shortage in Europe,” WoodMac said. “Russian coal accounts for roughly 30 per cent of European metallurgical coal imports and over 60 per cent of European thermal coal imports.

“The primary issue with replacing Russian coal exports in Europe is its reliance on Russia’s particular quality of coal.”

Analysts have already seen the impact the conflict has had on the gold price, with the price scaling above $2600 per ounce for the first time in 15 months in mid-February.

Yet this was before the invasion was launched. On February 25, the gold price closed at $2612.52 per ounce in Australian dollar terms according to the World Gold Council.

Such prices could sustain as investors often retreat to gold as a safe haven during times of geopolitical uncertainty. This is because it is not at risk of becoming worthless, unlike fiat currencies.

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