Commodities hit new highs as traders shun Russian purchases

by BLOOMBERG

NEW YORK • Global commodity markets surged to multiyear highs yesterday after traders backed away from Russia, sparking anxiety that supply will fall short in everything from wheat to natural gas.

Oil passed US$110 (RM460.90) a barrel, aluminium hit a fresh record and wheat rose to the highest since 2008. In Europe, natural gas prices and coal set all-time highs, deepening the region’s energy crisis.

Even though natural resources have avoided direct sanctions, traders, banks and shipowners are increasingly avoiding trade with Russia. They’re concerned about getting embroiled in banking sanctions, worried that new measures will include commodities and fearing the reputational damage of trading with Vladimir Putin’s regime.

“The markets are now adjusting to the next worsening of the crisis,” said Paul Horsnell, head of commodities research at Standard Chartered plc.

“Things that were unthinkable a week ago are not unthinkable now.” The commodities chaos caused by Russia’s war in Ukraine will reverberate through the global economy, sparking industry shortages and quickening inflation already at the highest in decades. Russia is the world’s largest energy exporter, a vital metals supplier and together with Ukraine accounts for 25% of wheat shipments.

China’s government told officials to prioritise commodities supply security, a sign of increasing anxiety among policymakers about the repercussions of Russia’s assault on Ukraine.

The impact of self-sanctioning and rejection of Russian counterparties are multiplying across commodity markets.

European natural gas surged as much as 60%, exceeding this winter’s record as supply fears were compounded by traders trying to avoid exposure to Gazprom PJSC’s trading unit.

Grain traders have been unwilling to take the risk of entering a new business or pay the soaring costs of chartering and insuring ships to collect cargo from Russian ports. Ukraine’s exports are already at a standstill, with growing fears that supply disruptions will spill over into the next season and potentially beyond.

Benchmark soft red winter wheat futures jumped by the daily limit, soaring 7.6% to US$10.59 a bushel in Chicago. Corn climbed 2.8% to the highest since 2013, before paring gains.