Russia’s invasion of Ukraine continues to dominate the headlines, partially because of its influence on global economics and commodities.
As countries and jurisdictions band together to impose sanctions on Russia, the ripple effect on commodities has been immense, with the likes of nickel, copper and coal prices reaching record highs.
BHP is a significant part of the global economic puzzle and speaking at the Australian Financial Review Business Summit on Tuesday, BHP chief executive officer Mike Henry said there’s “a huge amount of uncertainty” regarding the Russia-Ukraine conflict.
“What we can say in BHP’s business, it’s had a dramatic impact on commodity prices,” he said. “You look at liquefied natural gas (LNG) for example. A couple of years ago, it was sitting at $US2 per million British thermal units (BTU). Earlier today, it was sitting at $US84.
“We’ve seen hundreds of per cent price increases for a range of commodities which is going to have spill-over effects on inflation, potentially on global growth – we’re forecasting possibly a 0.5 per cent lower global growth over the course of the next year than we were previously anticipating.”
With Australia’s severe weather events, the pandemic and COVID-related labour constraints in the background, the market is already unstable as it is. Add the current geopolitical crisis and companies are being tested on a new level.
Henry said businesses who can wisely manage cost pressures will be best placed amidst the uncertainty.
“Markets overall were more volatile heading into the Russia-Ukraine conflict, certainly on the supply side of things,” Henry said.
“We’re seeing exacerbated supply side shocks, be it from conflict, we’ve had weather challenges here in Australia particularly on the east coast. COVID (has had an impact) of course, which continues to disrupt supply chains and supply of some commodities.
“All of these are leading to greater volatility and the key is how companies position themselves to contain inflation, so that’s been a big area of focus for us – ensuring that costs don’t run away from us.
“But also ensuring that you have greater leverage in those commodities that do have that upside skewing as the world navigates some of the challenges that lie ahead.”