Commodity prices have skyrocketed since the start of the Russian Attacks on Ukraine. The reason for this is that there is a possibility of the impact of the war on supplies from Russia. Ravindra Rao, VP and Head (Commodity Research), Kotak Security has explained this in detail. Let us know what is their opinion about this.
Big Player of Russia Commodities Market
Russia is a major player in the commodities market. Commodity prices have risen to several-year highs due to rising supply concerns. Prices of some commodities have gone to life-time highs. Crude oil prices are at their highest since 2008. The price of gas in Europe has reached an all-time high.
In industrial metals, the prices of copper, nickel and aluminum have reached record highs. Zinc has surpassed its 2007 high. Gold has reached the highest level since August 2020. This is because investors are turning to safer instruments for investment.
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Russia and Ukraine talks inconclusive
Earlier this week, there was hope for a reconciliation between Russia and Ukraine. But, after talks between the foreign ministers of Russia and Ukraine in Turkey ended in vain. This week the US announced a complete ban on Russia’s energy exports. However, this was already being expected. On the other hand, England has said that it will gradually reduce Russia’s energy imports. However, it has not imposed any restrictions on Russia’s coal and natural gas.
Commodity prices have shown some moderation. This is because market players have understood the impact of higher prices. The continuous rise in prices will affect the growth of demand. Rising commodity and energy prices will add to inflationary pressure, leading to economic activity first and then demand.
Profit-booking seen in commodities
We also saw some profit booking in commodities. Indeed, market players are anticipating the impact of the Ukraine Crisis on the policy of central banks. The European Central Bank in its monetary policy meeting this week emphasized the risk of a downturn in the economy. However, it said bond buying will stop in the third quarter only if economic data allows it.
Eyes on US central bank
Now all the focus is on the Federal Reserve meeting to be held next week. It is now believed that the US central bank will not show much aggression in raising the interest rate. Because geopolitical tension is already a big challenge for growth. However, the Fed’s stash will remain aggressive as inflation remains at very high levels. The latest inflation data showed that in February, inflation has reached 7.9 percent. This is the highest inflation in America in the last 40 years.
What’s next?
On March 8, nickel prices rose 100 per cent to cross the $100,000 per tonne level. Due to this the London Metal Stock Exchange had to put a stop to its trending for a short time. I believe for now commodity prices will continue to fluctuate. Because market players want to see the demand-supply situation. His eyes are also on the monetary policy of the world’s big central banks. In such a situation, a sharp fall in the prices of commodities is not expected until concrete steps are taken to end the Ukraine Crisis.
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