Russia’s invasion of Ukraine has pushed prices for major Australian commodities soaring as traders rush to secure supplies against the threat of sanctions and war disruptions.
Prices of coal, oil, wheat and aluminium have surged by double-digit percentages this year. Together with natural gas, they accounted for a quarter of export revenue in 2019-20, according to the Department of Foreign Affairs and Trade.
Futures trading, in which investors trade contracts for delivery over months or even years later, is also climbing steadily. For oil and coal, futures contracts a year from now are above pre-invasion prices.
Oil, natural gas and coal
Global benchmark Brent crude struck more than US$130 for the first time in over a decade on Monday morning as traders reacted to reports that the US and its European allies are discussing a ban on imports of Russian oil.
Futures markets were in line, too. The price for a barrel of crude oil delivered eleven months in the future hit the US$100 level for the first time since 2014 on Monday, up 42% since the beginning of the year.
Prices also reflect fears about supply shortages after Western producers and consumers severed links with the Russian energy sector, which has been largely exempt from sanctions, according to Dave Meats, director of energy and utilities.
“Sanctions have also made global businesses and financial institutions very loath to do business with Russia, even in ways not expressly covered,” he says. “As a result, it’s hard for traders to sell Russian crude.”
And markets for Australian natural gas exports are booming, too. An indicator of export prices for liquified natural gas (LNG), monitored by the Australian Competition & Consumer Commission, has nearly tripled in the past 6 months. Futures contracts indicate prices may remain like that until March 2023.
Local natural gas exporters can also be helped by rising oil prices, since gas is set in many long-term contracts based on crude oil.
Wheat
Wheat prices are set to ease in the next two years but would likely stay high by historic levels amid supply shortages, as the Department of Agriculture, Water and the Environment (AWE) noted last Tuesday.
A tight global supply of high-quality wheat suggests prices will be capped around the $400 per tonne level in fiscal 2023, more than double the average across 1980 to pre-covid, according to AWE data. Prices should ease from fiscal 2024 depending on the pace of economic recovery.
The Department of Agriculture warned that blocked shipments of grain from Ukraine and Russia via the Black Sea would drive prices higher. Russia and Ukraine together make up around 29% of global wheat exports.
Ukrainian authorities closed ports and suspended grain exports until the war ended, Reuters reported last Monday.
Aluminium
Aluminium has seen similar trends in other commodity markets in recent weeks, marking significant leaps in spot and future prices.
Contracts for March were up 17% since Feb. 22. August deliveries are now 16% more expensive on contracts dated 6 months into the future, indicating traders expect prices to remain high.
Russia is the world’s second largest producer of aluminium behind China and accounts for 6% of global production.
Iron ore
Costs for Australia’s largest export by earnings have increased steadily since reaching November lows as Chinese officials intensified stimulus in the world’s top iron ore buyer and suggested an end to the nation’s zero-covid strategy.
A recovery in China is forecast to drive demand for steel in construction, industry and other applications. Iron ore is a major ingredient in steelmaking.
The spot price closed on Friday at US$152.28 a tonne, up from US$92 in mid-November.
Futures markets indicate that prices will remain around these levels for the next year. Contracts for iron ore delivery one year from now, to March 2023, ended at US$146.09, a 4% discount to spot.
