Commodities from gold and wheat to aluminium soar on Russian sanctions

Wheat futures rose as much as 8.7 per cent in Chicago to $9.3475 a bushel PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Commodities from wheat and gold to aluminium rallied on Monday (Feb 28) in a jittery start to the week, after world powers imposed fresh sanctions on Russia over its invasion of Ukraine.

Wheat rose to near its highest level in more than 13 years, while aluminium and nickel also surged. Gold - a haven in times of international tensions - climbed more than 2 per cent.

The United States and a sweep of European governments agreed to penalise Russia’s central bank and exclude some Russian banks from the Swift messaging system, which is used for trillions of dollars worth of global transactions. The intensifying tensions add to deep uncertainties for commodities, which have been roiled by Russia’s invasion of its smaller neighbour. 

“We expect the price of consumed commodities that Russia is a key producer of to rally from here,” Goldman Sachs Group wrote in an e-mailed note. “Barring a breakthrough in peace negotiations, we believe this leaves commodity prices having to rally sharply as we see demand destruction as now the only significant remaining balancing mechanism.”

Russian and Ukraine together account for nearly a quarter of global wheat exports and a fifth of corn sales. Russia is a major supplier for a swathe of commodities, including aluminium, nickel, palladium, oil and gas.

Trouble at sea

As the war intensifies, the risk of logistical turmoil is also rising fast across commodity markets, with insurers either refusing to offer cover for vessels sailing into the Black Sea, or demanding huge premiums to do so. Turkey was the biggest single buyer of Russian aluminium in 2020, ahead of China and Japan, according to United Nations Comtrade data.

In grain markets, ports in Ukraine are closed and traders say they are staying away from Russian grain. Some exporters cannot agree to contracts at the moment because they do not know if they will be able to fulfil them as the situation evolves, Bloomberg reported.

Wheat futures in Chicago surged as much as 8.7 per cent to US$9.3475 a bushel, while corn climbed 5 per cent and soya beans rose 3.9 per cent. 

Aluminium rose as much as 3 per cent in London, while nickel advanced. Palladium climbed as much as 7.8 per cent on concerns over potential supply disruptions. Russia produces about 40 per cent of the palladium mined globally. Silver and platinum rose more than 1 per cent.

Gold boost

The crisis in Ukraine has also bolstered gold as investors seek safe havens. The latest Western sanctions prompted a pledge from Russia’s central bank to resume purchases of the precious metal that have been on pause for nearly two years.

“Gold has only one trajectory at present, and that’s upwards,” said Mr Gavin Wendt, senior resource analyst at MineLife. “

While the precious metal is already well-supported on the back of inflation and interest rate uncertainty, the "political contagion with Russia has supercharged gold and it looks set to maintain its positive momentum", he said.

Spot gold rose as much 2.2 per cent to US$1,930.85 an ounce, before trading at US$1,910.48 at 10.41am Singapore time. 

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