What is the trend of commodities after the conflict between Russia and Ukraine?

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Russia-Ukraine conflict intensifies commodity prices.

After the outbreak of the military conflict between Russia and Ukraine, the problem of accelerating the rise of commodity prices has attracted much attention. However, we have observed that the process of rising commodities has actually lasted for about two years. In other words, can the conflict between Russia and Ukraine only be said to be part of the upward trend of commodities?

That's basically it. Commodity has the triple attributes of commodity, finance and geopolitics, so the price of commodity mainly depends on three factors: first, the relationship between supply and demand; Second, commodities are denominated in US dollars, which will be affected by the Federal Reserve's monetary policy and the US dollar exchange rate; Third, geopolitical factors, such as the Russian-Ukrainian war and the Middle East conflict.

At present, the rise of commodity prices is influenced by the relationship between supply and demand, monetary finance and geopolitics. First of all, the economic contraction, reduced demand and investment caused by the epidemic, coupled with unemployment, city closure and other regulatory policies, have greatly restricted the production of bulk commodities. Second, from the supply side, port transportation all over the world is very poor. The transportation cost has risen sharply, and the supply chain is not smooth, which has increased the transportation cost of bulk commodities. Third, the toxicity of COVID-19 has decreased recently, vaccination in many countries has been accelerated, epidemic prevention has begun to relax, the global economy has obviously recovered and rebounded, and the demand for bulk commodities has increased. However, the output and supply of bulk commodities are difficult to rise rapidly because of the decline in early investment. For example, investment in energy and minerals takes a long time. Compared with general manufactured goods, an obvious feature of bulk commodities is the low elasticity of supply and demand, which is easy to cause price ups and downs. When demand rises, supply can't keep up, and prices will rise sharply. In addition, transportation costs will rise, and the current price will also rise. In addition, the Federal Reserve's extremely loose monetary policy and excess liquidity have also led to the rise in commodity prices.

In geopolitics, the conflict between Russia and Ukraine is the most important factor affecting commodities. Although Russia's own economy is small, it is an energy superpower, the third largest producer of crude oil, the first largest exporter of petroleum products, the second largest producer and exporter of natural gas and the third largest exporter of coal. In addition, Russia is also an important food exporter. Therefore, Russia's position in the commodity field is very important. After the outbreak of the conflict between Russia and Ukraine, the United States, Canada, Britain and other countries banned the import of Russian oil, while enterprises in western countries boycotted Russian oil. If Europe doesn't buy Russian energy products, it will grab non-Russian energy products. The sharp increase in demand for products from other countries will inevitably lead to an oversupply of energy in Russia, but the shortage of energy products from other countries will lead to a sharp increase in the price difference between Russia and other countries. Russia can only sell energy products at a large price discount. At present, the price difference between Ural crude oil and Brent crude oil is around $30/barrel.

In addition, US and European sanctions also include prohibiting the export of advanced energy production equipment and technology to Russia, prohibiting new investment in Russia, and even requiring enterprises to withdraw from Russia, and oil service companies have also withdrawn from the Russian market. As a result, the Russian oil and gas industry's ability to acquire technology and capital equipment is weakened, and its output will also decrease. At the same time, Russian ports and shipping companies were sanctioned, and their ships could not go to the ports of western countries, and the ships of western countries did not call at the ports of the Black Sea in Russia. However, humanitarian supplies such as food and medicine are excluded. In this way, Russian freight will not come out, even if it is transported by other means, it will increase a lot of costs.

In this way, from the supply end to the transportation chain, the pressure of rising commodity prices has increased, which is obviously caused by human factors such as sanctions imposed on Russia by the United States and the West.