The escalation of political risks shakes the basic commodity markets

Amiko Terrazono, Nile Hume from London and Nick Fields from Sydney

Like many people, Jarry Sharei was constantly inspecting the news to find out the latest developments in the Russian invasion of Ukraine.But his interest is not only person, as the purchasing director of the Hofz bakery, one of the largest bakeries in Britain, if I share an official for buying everything from the pills to make bread to the steel used in machines.Both Russia and Ukraine are two important sources of grains, as the two countries meet about a third of the global wheat trade.As for the Hofz bakery, the high prices of wheat caused by the invasion and subsequent sanctions on Russia had important effects on its work.."From Ukraine and Russia - the flow of grains from the Black Sea is very important for the global market," says Sharei, with exports from almost both countries..This is not limited to grains only.Sharei also refers to the jump in aluminum prices.The price of a light metal, used in everything from cars to beer boxes and the bowl in which bread bakes, is on its way to reach a standard level above $ 3475 per ton - which partially reflects the fact that Russia is the second largest source."Everything has risen.There is a political risk allowance that falls into many products..Noting the increase of 51 percent in the price of wheat and nearly 600 percent in wholesale gas prices in Europe during the past 12 months.The conquest of Ukraine threw its shadow on the commodity sector because it also made it impossible to ignore the geopolitical lines that pass through many of the main raw materials markets.Political risks are on a continuous escalation.The same conflict and the sanctions imposed on Russia cause a number of markets - especially wheat.And the high cost of energy is repercussions that extend to other commodity markets, including the cost of fertilizers used by farmers.Moreover, basic commodity merchants and purchasing managers are increasingly concerned about the way many raw materials can be used as weapons of foreign policy - especially if a new cold war arises in a division between Russia, perhaps China, and between the West.During most of the past three decades, the commodity industry has been one of the most prominent examples of globalization, which created huge fortunes for commercial companies that link the buyers of raw materials and their sellers..Neon40-50 per cent of all neon exports comes from Russia and Ukraine.Neon is a secondary product of steel manufacturing, a basic raw material for chips.When Russia entered eastern Ukraine in 2014, the price of the neon jumped 600 percent, causing the semiconductor manufacture.Although many individual projects in areas such as mining have always been linked to politics, the markets themselves are based on the expectation of the open global supply.Executive purchasing managers such as Sharei in "Hofz" are concerned about prices, but much less about the ability to get the raw materials they actually need.The shift in the mentality of the basic commodity sector has been increasing since a decade.With the escalation of tensions between the United States and China, Beijing's control of the rare dirt elements - minerals used in many aspects of manufacturing - have sparked fears that raw material supplies will become political weapons.But over the past two years, two separate events have occurred that increased the focus of the mentality.The Kofid -19 pandem.Now, from grains to energy to minerals, Russia's invasion of Ukraine is a reminder of how some countries exercise great influence on raw material supply thanks to its large market share of biomedics.In addition to being the main resource of gas in Europe, Russia is also dominant in the markets of a number of other important commodities, such as oil, wheat, aluminum and albadium."The commodities have been armed for a very long time (...The question is always when a country is pressed on the trigger..Some companies and governments in the short term responded to the Ukraine war by increasing their stocks of important raw materials.As for the long term, the war forces the industry to think of alternative supply chains that can overcome the potential economic and financial conflict that escalates between Russia and the West.."The world is more concerned about the problem of political geography than it was ten - 15 years ago.Then it became anxious about globalization.Now anxiety is about active supply chains.People are wondering, will we have supplies, will we get access? ".Global armament, while companies and governments have sought to reduce costs in their supply chains, they have become unintentionally more dependent on two specific products, from grains to computer chips, which made them vulnerable to sudden disorder in the flow of products.The possibility of natural resources as a weapon appeared through Russia's use of gas exports to Europe.Russia represents about 40 percent of the European Union of Gas Union.However, in the last quarter of last year, Russian exports fell to northwestern Europe between 20 and 25 percent, according to the International Energy Agency, after the Russian gas backed by the state, Gazbrom, adopted a strategy to fulfill only the obligations of long -term contracts and not to display additional supplies in the immediate market.Natural gas produces 17 percent of global natural gas.The invasion of Ukraine was a reminder of how some countries exercised a great influence on raw material supply such as natural gas.In January, Fateh Birol, head of the International Energy Agency, blamed the high prices of gas on Russia, which blocks gas from Europe."We believe that there are strong elements of tightening in the European gas market because of Russia's behavior," he said..Even when Germany stopped last week the approval of the Nord Stream 2 gas line, a tweet from Dmitry Medvedev, the former president of Russia and the vice -president of the Russian Security Council, some considered a threat to the region's dependence on Russian gas..In it, Medvedev said: "Welcome to the brave new world, where the Europeans will soon pay two thousand euros per thousand cubic meters of gas!"."At any time it focuses on supplies, there is a danger that is difficult to avoid.It is clear that Russia uses gas as a political tool..For analysts, the imposition of unprecedented sanctions on the Russian Central Bank - which caused a decrease in the value of the ruble and accompanied by statements about a "economic war" from European politicians - only increases the risk of Russia to block the supplies of some commodities.If this happens, Russia's dominance of certain minerals and rare gases may have repercussions in multiple supply chains.When the aluminum Rossal company was included in the black list of financial institutions in 2018 after the US sanctions, the prices rose by a third, which caused chaos in the auto industry..Palladium is produced 40 percent of palladium in the world in Russia.Chemical makers use the chemical component to remove toxic emissions from exhaust fumes.The country is also a major producer of dulium, which is used by car manufacturers to remove toxic emissions from exhaust fumes, as well as platinum, copper and nickel, which are used in batteries that operate electric cars.Russia and Ukraine are also the dominant resources of neon gas, which is a smell gas, a secondary product for manufacturing and a basic raw material for the manufacture of chips..Neon is obtained and purified from many specialized Ukrainian companies, according to American research company Texit.When Russia invaded eastern Ukraine in 2014, the price of the neon jumped 600 percent, for about one night, which caused a tremendous disturbance in the semiconductor industry.."We expect the period of geopolitical tensions and high risk bonuses on all basic commodities in the wake of the Russian invasion of Ukraine..Russia has a long -term impact on the global commodity markets, and the conflict that began to reveal significant impacts, not the least high prices..Perhaps the impact on the prices of grain and food is one of the most anxious impacts of the war in Ukraine.This conflict comes at a time when food prices have already increased as a result of weakening of crops around the world.However, Ukraine still has large stocks of last year's harvest to export, and export disorder may be "severe consequences for food insecurity in the already weak countries that depend on the grain of Ukraine," says Ketlin Wilsh, director of the World Food Security Program at the Studies Center.Strategy and international, "an American intellectual institution.As for the 14 countries where Ukrainian wheat is one of the basic imports, almost half of them suffers from a severe inception in food security, including Lebanon and Yemen, according to the "Center for Strategic and International Studies".But this effect will not be limited to these two countries.The Russian invasion caused an increase in energy prices, and risks "to pay food insecurity high," she says.Even before Moscow's attack on Ukraine, the growing geopolitical tensions from Europe moved to global food markets.The prices of the main fertilizers jumped last year after the European Union announced the imposition of sanctions on human rights violations against Belarus, the main producer of Potas, and China and Russia imposed, and they are also large sources of fertilizers, restrictions on the volume of exports to protect local supplies.The acute shortage of fertilizers invaded the rural areas of India - which depend on external purchases by about 40 percent of the main crop nutrients - in recent months of 2021, which led to protests and clashes with the police in the central and northern parts of the country.For Ganesh Nanoti, the farmer whose crops vary between cotton and grains in the Indian state.He says, "There was a deficiency in DAP di -ammonium phosphate as well as potash," adding that although he was able to obtain alternative nutrients at a higher price, its crops were affected by chickpeas, bananas and onions..He says, the rise in fertilizer prices led to losses..Analysts expect that phosphate prices will remain high until China will raise the export ban in the middle of the year, while it is unlikely that the tensions surrounding Belarus will be decreased any time soon..Chris Lwson, head of the fertilizer department at CRU, says it is difficult to see a decrease in the potash bonus..Some analysts believe that the increasing Russian influence in the countries of the former Soviet Union can ultimately have a situation in which Moscow has a strong impact on the global grain market - especially if it can achieve a victory in Ukraine.Belarus is now closely allied to Russia, while Moscow has recently sent forces to support the government in Kazakhstan, another large product of wheat."We can start seeing the food becomes a weapon again in some strategic plans," says David Labord, a first researcher at the International Food Policy Research Institute, is a research center for agricultural policies.Administration of the increasing concern about concentration in the supply of basic commodities, some governments and companies have taken steps in an attempt to mitigate these effects by increasing stocks."People now build more reserve stocks compared to what was the situation ten or 15 years ago.We have already seen this in the Kofid era.Everyone realizes that active supply chains were appropriate when the world was perfect, in normal times..Egypt, for example, has stored wheat, where the government said it has enough of this basic commodity until November of imports and expected local crops.The Minister of Supply recently said that the tensions between Russia and Ukraine led to a "state of uncertainty in the market", and that Egypt has already its purchases of wheat and discussions are held to protect its purchases with investment banks.Alternative supply chains, if storage is a short -term response to the crisis, the long -term response may repeat what happened during the past decade with rare dirt minerals, which are minerals used in high -tech products from wind turbines to electric cars.China dominates about four fifths of the global output of it, and its willingness has emerged to use its dominant center in 2010, when it reduced its limited exports, which led to high prices."The problem with China is focusing the power of the supply chain it has.They have shown ready to use this power concentration in order to achieve geopolitical power..In order to reduce its dependence on China in rare dust elements, the United States, Japan and Australia have spent the past decade in planning ways to develop new supplies.President Joe Biden announced last week that the government is investing $ 35 million in MB Materes, which is the only process for rare dirt mining and processing in America in California..The US Department of Defense has supported some of the projects, including the Lynas Huge Project in Caljuri, Western Australia.The state is home to many other new mines, which were supported by the Australian government.In one of the potential programs, the Yangipana project in West Australia, which was developed by the Hastings Technology Company, the workers are building paved roads around the town of Gascin Gencunch, which is located about 25 kilometers to the westThe most famous of it, previously known as the Erz Rock.The first workers are digging on the site and revealing large rocks, which makes their work more difficult."They complain about their arrival at the foothills of Mount Agustos," said Matthew Allen, the financial director of Hasnegas, who obtained a financing loan worth $ 140 million Australian dollars with the support of the Australian government to develop the Yangbana mine as part of its new important strategy to explore for minerals.Once you reach full operation within two years, Hastings expects that the Yangbana project will provide 8 percent of the global demand for neodimium and baciodimium, two of the 17 rare ground minerals and the most requested.According to industry analysts, other mines that will start operating in Australia may push this number towards providing a third of global supplies in the coming years.Rare earthy minerals are produced 80 percent of the world's rare minerals in China.These minerals are used in high -tech products from wind turbines to electric cars.The United States and other countries are trying to develop alternative supplies.In the United Kingdom, Sharei from "Hofz" says that he started resorting to long -term relationships to secure supplies.He says, "Make sure that you are at the top of the list, where the importance of good relations for many years with suppliers is highlighted.".He added, "You are already dealing with suppliers at different levels now from what we were probably the situation two years ago to ensure that we get the continuity of supplies through our companies.".He says that companies that directly depend on Russia and Ukraine to obtain goods need to think about what awaits them."How does agriculture appear in Ukraine appear? When will these displaced people return? Will they return?" He said..He adds, "The attention is now turning to what matters will lead to the long run.There is a great deal of uncertainty next year and beyond..

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