Market Reacts to the Reality of the Sanctions—Commodity Prices Decline

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Gas prices have dropped significantly in recent weeks, and commodity prices have decreased from soaring levels at the beginning of the war as the market adjusts to the new circumstances.

Commodity Markets News

According to the Commodity Markets Outlook Report by the World Bank, the war in Ukraine posed a significant shock to commodity markets. It is already in its 8th month, but commodity prices are dropping as the market adjusts to new dynamics

The week after the Russia-Ukraine war started, the spike in commodity prices was felt not only within Ukraine but also across the globe. However, since then, dealers of Russian raw materials have adopted the new, strict sanctions regime and discovered other markets and clients requiring essential resources.

Although the exported grains of Russia and Ukraine were slightly down as compared to last year, 130mn tonnes from 135 mn tonnes and 40 mn tonnes from 48 mn tonnes, respectively, the market still has enough grain supply from the two countries combined. Wheat exports from the Black Sea port and Chicago are also expected to ramp up in the following months.

President Putin criticised the UN-brokered agreement with Ukraine to establish a safe corridor for grain trade through the Black Sea. However, it hints that Russia may disrupt the grain flow out of Ukraine once more. Thus, the concerns about disruptions from Russia and Ukraine, the world’s two largest exporters, remain

European Natural Gas Prices

On September 13, the cost of natural gas dropped below €190 per megawatt hour ($2,059 per thousand cubic metres). Since Putin engaged in a geopolitical game with the rest of Europe and its gas suppliers, gas prices have spiked. Since then, a plethora of assistance and relief measures have been announced by European governments to address the problem. However, the current price is still 190% higher than the cost of gas a year ago.

Other commodities to lower prices are oil, down to $95 from its recent peak of $120, and metals such as copper, gold, iron, nickel, and aluminium, except for palladium and titanium. Fertilisers were down to $600 per tonne yet remained three times higher in most of 2021.

Most other commodities have experienced comparable drops to lower levels, while several continue to trade at premiums over pre-war values. Will this downward movement of prices continue until the year ends?

The Outlook Report says, “While price pressures are expected to ease in 2023, commodity prices will remain much higher than expected. The outlook depends on the duration of the war and the severity of disruptions to commodity flows.”

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