Impact of Russia-Ukraine

war on various

commodities
 Why Russia began military build-up near Ukraine,
what it wants from West ?

• At the heart of the current crisis between Russia and Ukraine is NATO - a
group of 30 countries including the US, UK, France, and Germany.
• Ukraine wants to join this group of which the United States, the arch-rival of
Conflict •
Russia, is a part.
Russia doesn't want NATO to allow Ukraine to become its member as the
explained in •
member countries of NATO will support Ukraine in case of any attack.
Kyiv fears attack by Russia as the latter has already captured Crimea from

7 points •
Ukraine.
Russia thinks that if Ukraine becomes member of NATO, it might try to take
back Crimea by military action.
• Russia therefore is demanding the West to pull NATO forces out of eastern
Europe and never expand into Ukraine.
• Deputy Foreign Minister Sergei Ryabkov has said that for Russia, it's
mandatory to ensure Ukraine never, ever becomes a member of NATO.
What all commodities do Russia
and Ukraine export or supply?

Russia: Key supplier of oil, natural gas, coal, aluminum, wheat, pig iron and nickel

Ukraine: Key exporter of oil, natural gas, coal, aluminum, and wheat
 Key Points to note about
Russia & Ukraine
• Russia along with Ukraine is the largest wheat exporter in the world. Russia and Ukraine,
both occupy about 29% of the world's wheat export market.

• China is also a major recipient of Ukrainian corn. In fact, in 2021, Ukraine surpassed the
United States as China's top corn supplier.

• Russia and Ukraine are also big suppliers of metals and other commodities.

• The European Union will be affected by a deepening crisis, but Germany will be particularly
affected.
 Supply Chain & The War
• The biggest challenge in today's supply chain is the prolongation of the war between
Ukraine and Russia.
• It creates barriers in the market and disrupts the movement of commodities such as auto
parts, oil and grains.
• In addition, this serious impact on the supply chain is accompanied by almost weekly price
increases that drive inflation.

Impact of war • Nearly 600,000 companies around the world rely on Russian and Ukrainian suppliers. This
includes over 90 companies in the United States.
•
on Supply
Russia's aggression has shaken Ukraine's economic situation. The World Bank reports that
Ukraine's economy will shrink by 45% this year.

Chains Managing the Challenges

• One way is to streamline material management, starting with maintenance, repair, and
operational (MRO) materials.
• Without a good strategy for MRO, manufacturers may be in the dark on holdings across their
enterprise network which would reduce their unnecessary costs.
• When companies prioritize MRO material management, they are more likely to manage
inventory and other supply chain processes, increase agility, and increase sales and profit
margins.
 Commodity price developments

Commodity price changes in 2022 Energy price growth (in percent)

Fertilizer price growth (in percent) Food price growth (in percent)
 • After the start of the war in Ukraine, commodity prices (nominal) rose sharply,
especially for commodities where Russia and Ukraine are major exporters.
Commodity • Prices increased for energy, fertilizers and foods from April 2020 to March 2022
were the largest in the corresponding 23 months since 1973.

price • Many countries rely on Russian and Ukrainian raw materials. Europe imports a
significant portion of its energy from Russia, including natural gas (35%), crude
oil (20%) and coal (40%).
developments • Similarly, Russia depends on the European Union (EU) for its exports, with
about 40% of its crude oil and natural gas being exported to the EU
 Commodity Dependance

Share of Russia's energy exports to the EU

Russia and Ukraine’s share of commodity exports

Share of the EU's energy imports from Russia Wheat imports from Russia and Ukraine
 • The rise in commodity price volatility since February 2022 reflects concerns
about the current and potential impact of the war on the production and trade of
commodities, in which Russia and Ukraine play a particularly important role.
• Russia is the world's largest exporter of wheat, iron iron, enriched uranium,
natural gas, palladium and nickel. It accounts for a significant proportion of the
Commodity exports of coal, platinum, crude oil and refined aluminum.
• Russia and Belarus are important suppliers of fertilizers such as nitrogen and
Dependence potash.
• Many small emerging and developing countries rely heavily on supply from
Russia and Ukraine.
• More than half of wheat imports into Africa, developing countries and many
countries in the Middle East come from Russia and Ukraine.
5 major commodities that are hit
by war in Ukraine

Energy Food Transport Metals Microchips

 • Many European countries rely heavily on Russia's energy, especially gas through some
important pipelines, which may have influenced its approach to the crisis.
• Russia's reliance on gas is cited as a reason Europe is hesitant to exclude Russia from the
international payment system SWIFT.
• Global gas reserves are low due to pandemic, and energy prices are already rising sharply,
affecting consumers and industry.

1973 oil
crisis

Energy

• The World Bank's new report shows that the war in Ukraine has caused the biggest
commodity price shock since the oil crisis in 1973, pushing up prices over the next few
years. Energy prices rose 448% in the year to March, while food and fertilizer prices rose
84% and 222%, respectively.
 Why is the conflict causing global crude oil prices to
rise?
• This was because the world was afraid that the war would ban Russian oil in the West.
• Even before the United States and Britain banned Russia's oil and gas imports, some
countries stopped their purchases while others were panicking.
• The price rose to a 14-year high of $ 140 a barrel on March 7. Since then, they have fallen,
but only a few.

Energy
• Russia is the third largest oil producer in the world. It supplies the world market with 14% of
the world's production, or 78 million barrels of crude oil per day.
• The ban by the United States and Britain and the decision not to buy Russian fuel by some
(Crude Oil) other pro-Ukrainian countries exacerbates the crisis. Supplies were already in short supply.

Why is India worried?

• India, with 5.5 million barrels per day, is the world's third largest oil consumer after the
United States and China. Domestic oil demand is increasing by 3-4 percent each year.
• India imports 2% of its supply, including petroleum, from Russia, which is refined into
petroleum products. Therefore, it is not Russia's oil that is worried about India, but oil in
general and its rising prices.
 Oil prices recover from early losses

Energy
(Crude Oil)
• To summarize the above graph, Price trended up, resulting in a 24.74% increase between
Tuesday, February 1, 2022, and Friday, May 20, 2022. Oil price jumped from 95.04 to 113.90
during its steepest incline between Wednesday, March 16, 2022, and Friday, March 25, 2022.
• Crude oil prices rose, recovering from initial losses as continued concerns over tight global
supply outweighed concerns over slowing economic growth, as evidenced by the global stock
slump.
• Brent crude futures for July were up 97 cents, or 0.9%, at $110.08 a barrel, after falling by
more than $1 earlier in the session.
 Energy
(Heating Oil)
• Rate of Heating oil trended up, resulting in a 38.21% increase between Tuesday, February 1,
2022, and Friday, May 20, 2022. Price jumped from 3.67 to 5.14 during its steepest incline
between Monday, April 25, 2022 and Thursday, April 28, 2022.
• Heating oil futures traded at less than $ 4 per gallon but remained above the March record
level of $ 4.3 as traders assessed downside risks to oil supply and demand shortages.
• Domestic inventories of distilled fuels, including heating oils and alternative fuels, fell for
the fifth straight week until May 6.
• Current levels are the lowest in 17 years as refining capacity remains below pre-pandemic
levels and inventories have been depleted due to increased domestic and international
demand
 Energy
(Natural Gas)
• To summarize the above graph. Price trended up, resulting in a 66.60% increase between
Tuesday, February 1, 2022 and Friday, May 20, 2022. Price jumped from 4.75 to 5.50 during
its steepest incline between Tuesday, February 1, 2022 and Wednesday, February 2, 2022.
• US natural gas futures traded for less than $ 8 / MMBtu, squeezed by profits, lower European
natural gas prices and higher inventories.
• The utility injected 89 bcf into storage last week. This is largely in line with expectations, but
slightly above the five-year average of 82bcf.
• The US benchmark temporarily reached a nearly 14-year high of $ 9 in early May, more than
doubling since early 2022.
 • Russia and Ukraine lead the global production of metals such as nickel, copper
and iron. They are also largely involved in the export and manufacture of other
essential raw materials like neon, palladium and platinum.
• Fear of sanctions on Russia has pushed up the prices of these metals. For
palladium, the current transaction price of about $ 2,700(as of 23 rd May) per
ounce has risen by more than 80% since mid-December.
• Palladium is used in everything from automotive exhaust systems and mobile
phones to dental fillers. The prices of nickel and copper used in manufacturing

Metals •
and construction, respectively, have skyrocketed.
The aerospace industry in the United States, Europe and the United Kingdom
also depends on the supply of titanium from Russia. Boeing and Airbus are
already approaching alternative suppliers.
• However, as some aerospace manufacturers have long-term supply contracts
until 2028, the market share and product base of Russia's leading supplier
VSMPO-AVISMA makes it impossible to avoid it altogether.
• All of these materials are susceptible to confusion and potential bottlenecks,
which can increase the price of many products and services.
 • Aluminum prices headed for record highs as economic sanctions on Russia
over the invasion of Ukraine fueled concerns about supply from producer
Rusal and concerns over ship turmoil pushed nickel up.
• Russian aluminum producer Rusal has ceased production at the Nikolaev
Aluminum Refinery in Ukraine due to logistics challenges in and around the
Black Sea.
• The main risk in the aluminum market is that this loss of alumina supply will
Metals eventually lead to the shutdown of Russia's primary smelting capacity,
jeopardizing the annual production of about 900,000 tons.

(Aluminium) • Due to sanctions by Western countries, the world's three largest container lines
have stopped freight transportation to and from Russia when aluminum
inventories are low.
• Aluminum stockpiles registered with the LME have more than halved to
809,750 tonnes in the last 12 months, compared to nearly 2 million tonnes last
March.
• Market analysts predict prices could reach $ 4,000, and some analysts expect
average prices in the first quarter of 2022 to be around $ 3,000 plus or minus
5%. increase.
 Metals
(Aluminium) • Price trended up, resulting in a 3.49% increase between Monday, January 3, 2022 and
Wednesday, May 25, 2022. Price dropped from 3,745.50 to 3,363.17 during its steepest
decline between Monday, March 7, 2022 and Sunday, March 13, 2022.
• Aluminum futures bottomed out at around $ 2,900 per ton, about from record highs in early
March amid coronavirus regulation in China, a major consumer, and aggressive tightening
by large banks.
• Recent data from China exacerbate this dark outlook, as the world's second-largest economy
reports that industrial production has shrunk unexpectedly in April. In addition, rising
aluminum prices and the turmoil in Russian exports have brought Chinese smelters to record
levels.
 • Highly fluctuating prices as a result of massive export bans from Russia and all
uncertainties, the conflict between Ukraine and Russia has disrupted the global
market for nickel, a major metal in industrial, military, construction and
transportation products.
• Nickel is also an important source of rechargeable batteries used in electric
vehicles (EVs), raising concerns about the expected fossil fuel shift. Rising
input prices could hinder ambitious manufacturing plans for electric vehicles.
Metals • Russia accounts for about 11 per cent of the global supply of nickel ore, and 20
per cent of the world’s top-grade or Class 1 nickel.

(Nickel) • On March 8, the country announced an export ban on more than 200 products
in response to sanctions against it. The list did not include energy and metals,
including nickel, but the announcement was enough to drive the price out of
control.
• Shortly after Russia's President Vladimir Putin announced the ban, the London
Metal Exchange's nickel price exceeded $ 100,000 per ton, and the exchange
began to suspend metal trading. Since then, prices have regained calm, but
they are still far from prewar levels.
 Russia imposed ban

Trading halted

Metals
(Nickel)
• Nickel futures fell below $ 30,000 per ton and the LME market closed on March 4, the final day of
trading, after an unprecedented decline in trading volume caused a liquidity crisis in one of the major
industrial products.
• In early March, one of the world's top producers, China's Tsingshan Holding Group, made a bulk
purchase to hedge a short bet on metal, and the price was temporarily $ 100,000 in a malicious short
squeeze.
• Market movements now show that they have returned to normal after a few weeks of turmoil, trading
volumes are at average levels, and investors' focus is on slowing global growth in metal demand,
especially major consumers.
Other factors that affected
global markets
• Increased global demand, led by China
• Drought-reduced supplies
• Tightening wheat, corn, and soybean stocks in major exporting countries
• High energy prices pushing up the costs of fertilizer, transportation, and
agricultural production
• Countries imposing export bans and restrictions, further tightening supplies.