MCX Commodity	Weekly returns (%)	2022 YTD returns (%)
Crude oil	25.46	52.53
Nickel	20.66	42.04
Nat gas	12.27	36.96
Aluminium	14.6	36.89
Zinc	11.5	16.4
Copper	9.96	12.2
Silver	8.02	10.47
Gold	4.66	9.27
Lead	1.94	1.47
Dollar Index	2.03	2.96
USDINR	1.02	2.4
(Source: Bloomberg)

 

 

Commodities extended their massive rally as Russia’s invasion of Ukraine continues to roil global markets and fuel fears of supply crunches. Prices from crude and nickel to aluminum soared, as raw materials stage their most stunning weekly surge since 1974, during the days of the oil crisis.  Russia’s growing isolation is choking off a major source of energy, metals and crops, sparking fears of prolonged shortages

and accelerating global inflation. Traders, banks and shipowners are increasingly avoiding business with Russia because of the difficulty in securing payments, while shipping lines are shunning bookings from the region.

 

MCX Gold gained by 4.66%, as risks to economic growth fueled demand for the metal as a haven, eclipsing concerns over rising interest rates. Federal Reserve Chair Jerome Powell said in a U.S. Senate hearing that the Russian attack on Ukraine was causing risks both to inflation — via higher energy and commodity prices — as well as to growth. He reaffirmed the Fed is on track to raise rates this month, though Russia’s invasion means it will move “carefully.”  Gold is king of safe-havens amid a stagflation-shock. The war in Ukraine has significant and obvious implications for commodities prices, which could lead to a more persistent inflationary shock.

 

The war is disrupting flows of oil, grains and metals, intensifying existing price pressures in the global economy. Investors have sought out gold as a haven amid the uncertainty. Holdings in exchange-traded funds backed by the metal climbed to the highest since June, according to initial data compiled by Bloomberg. The prospect of rising rates is partly countering the gains from haven demand, as higher borrowing costs make bullion less competitive against assets that offer interest. Prices haven’t risen past a high reached late last month as existing holders are selling into rallies.

 

WTI crude futures surged almost 8% to above $115-per-barrel on Friday, not far from a 14-year high of $116.57 hit in the prior session, and posting their biggest weekly gain since May of 2020 as US lawmakers push to cut off US imports of oil and petroleum products from Russia. Despite widening sanctions on Moscow, OPEC+ will stick to an existing pact for a gradual increase in production. OPEC+ agreed to boost output by 400,000 bpd for March, leaving it with another 2.6 million bpd of cuts to unwind by the end of September.

 

Nickel futures surged above the $26,400 per tonne level for the first time since May of 2011, as Western sanctions against Russia over its invasion of Ukraine sparked renewed concerns over the metal supply. Along with prospects for loss of supply from the world’s third-largest, robust demand from the stainless steel and battery and dwindling inventories lent further optimism to the metal bulls. Nickel stocks in LME-registered warehouses have dropped almost 70% since April last year to 83,328 tonnes.

 

The war and the implications of sweeping U.S. and European sanctions on Russia have upended Black Sea supplies at a time when global stockpiles of raw materials are already tight. Russia is a major supplier of crude, natural gas, grains, fertilizers and metals such as aluminum, copper and nickel. Higher commodity prices have the potential to depress growth and stoke inflation, creating a dilemma for central bankers worldwide as they weigh the need to increase borrowing costs against the risk of stunting the economic recovery.

 

Jigar M Trivedi

Manager – Fundamental Research Analyst (NonAgro Commodities)