- Prices down from prewar level for 14 of 19 items in widely tracked index
According to Nikkei Asia article published on February 21, 2023, ahead of the anniversary of Russia's invasion of Ukraine, prices for many commodities that jumped due to the conflict have started declining. This is largely due easing concerns about the availability of Russian exports as alternative supplies come onstream.
Nikkei on Friday examined prices for the 19 commodities in the Refinitiv/CoreCommodity CRB Index, comparing them with those of Feb. 23, 2022, and found that prices for 14 items had fallen compared with the day before the invasion.
The data shows a dramatic shift in the global supply chain for crude oil and gas over the past year. According to financial information provider Refinitiv, Japan and Germany cut seaborne imports of Russian crude oil significantly in 2022, with imports falling 60% versus the previous year. Similarly, the U.S. also imported far less Russian crude oil, with shipments down 90%. China's imports of Russian crude, by contrast, rose 30%, while India's surged seventeenfold over the same period.
In the natural gas market, as European importers secured alternatives to Russian supplies, dramatically increasing imports of liquefied natural gas (LNG) from the U.S. and elsewhere, gas prices have plummeted by nearly 80%, compared with their peak in August 2022. This is due in part to weaker demand in the wake of unseasonably warm winter weather in Europe.
Lower prices for crude oil and other commodities have made it harder for Russia to fund the war. In January, oil and natural gas revenues, a key source of Russian government revenue, fell 46% on the year. But despite the drop in revenue, military spending rose, leading to a budget deficit for the second consecutive month.
Despite the sanctions, many Russian commodities are finding their way onto world markets, with importers struggling to find new suppliers. Russia holds roughly 4%, 5%, and 7% shares of the copper ingot, aluminum ingot, and nickel markets, respectively. Strong demand has kept these Russian commodities in circulation. Although their prices reached record highs in March 2022, copper and aluminum prices have fallen 10% to 30% from their pre-invasion levels, as they continue to be relatively abundant.
In the nonferrous metal segment, the U.S. is expected to impose a 200% tariff on Russian aluminum, according to U.S. media reports. Increased production in North America makes the sanctions feasible.
Prices for some items remain high for which Russia is an important supplier. Japanese-made titanium materials are becoming more popular among aircraft makers as a substitute for Russian imports. As of Feb. 14, the price of titanium ore was nearly 20% higher than before the Russian invasion of Ukraine, according to Argus Media, a British news agency.
"Prices can soar if the East-West rift deepens and supplies from China are cut off," said Toru Okabe, a professor at the Institute of Industrial Science at the University of Tokyo.
Prices for all 19 commodities on the CRB index are higher versus the end of 2019, before the COVID-19 pandemic struck. Copper prices have risen by about 50%. Many market analysts believe prices are unlikely to return to pre-pandemic levels, due to labor shortages and higher transportation costs as the virus lingers.
The outlook for keeping a lid on inflation is murky. Iron ore and other prices are climbing as China has ended its zero-COVID policy and its economy recovers. The price of the iron ore futures (core contract month) on the Dalian Commodity Exchange has risen 44% since the end of October last year.
Crude oil futures, currently below $80 a barrel, are forecast to top $100 later this year. According to Goldman Sachs, China's reopening may add 0.5 percentage point to U.S. inflation as a result of higher crude oil and other prices.
