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This trio of SA commodities get boosted by the European crisis

by , 08 March 2022
This trio of SA commodities get boosted by the European crisis
The war in Ukraine threatens further disruptions to already stretched supply chains.

Whilst Ukraine and Russia are small compared to the likes of the US, China and Germany, they are essential suppliers of many raw materials crucial to supply chains down the line.

So exactly which of these commodities will be hardest hit? And does that pose opportunity?
Three commodities hit by the Ukraine crisis

Commodity #1 – Energy
Europe is heavily dependent on Russia for both coal and gas.

European coal prices have now surged to historic highs as sanctions against
Russia for its assault on Ukraine tighten the global market, driving traders to look elsewhere for the commodity.

The sanctions have triggered intense concerns over the ability of European utilities to get their hands on coal from Russia, which supplies more to the region than any other country.

Benchmark annual futures jumped as much as 32% to $200 a ton on Tuesday, the highest since 2008. Month-ahead prices rose as much as 38% to hit a record high of $322.50.

EU coal stocks are now at the lowest levels they have been at since 2014.
Similarly, oil and gas prices have soared.

South African companies that will benefit from the trend include Sasol and Wescoal.

Commodity #2 – Precious metals
There are two groups of precious metals that are on the up due to the crisis.
And they are going up for different reasons.

Firstly, there’s gold.

The price of gold traditionally soars when there’s war and unrest. On 30 January 2022 the gold price was at $1,789/oz. Today it trades at $1,945/oz.

The second group of precious metals is platinum group metals. This would include platinum, palladium, rhodium and more.

Now here’s the thing – Russia is the world’s largest producer of palladium and the second largest platinum producer. Both palladium and platinum prices have risen in response to the crisis. And if sanctions against Russia eventually hits exports like those of these metals, it could seriously affect the world’s supply of the metals and prices could soar even further.

Platinum is up from $930 in December 2021, to its current $1,060. Palladium has soared from $1,826 on 3 January to $2,503 today.

At this stage it isn’t clear whether sanctions could create a supply crunch or not – but prices have already gone up somewhat, and if there’s tightness in supply they could increase even further.

The Russia-Ukraine Conflict will accelerate the bull run in
commodity stocks…

• Coal is up +160%
• Lithium’s skyrocketed +476%
• Cobalt’s rallied +68%
• Tin’s risen +85%

These are just some commodities, which have soared recently.

So why this mega boom in all these commodities?

Well, simply there’s a massive supply/demand imbalance fuelled by the European and Asian energy crises, green energy boom and electric vehicle (EV) revolution.

Plus, these commodities drive growth in industries such as electronics, construction, national defence and much more.

So as you can imagine, the Russia-Ukraine conflict is only going to accelerate this bull run. 
If you want to know which JSE stocks stand to profit go here.

Commodity #3 – Food
If Russia continues its war in Ukraine for another month, Ukraine won’t be able to start sowing wheat and barley. Ukraine exports around 24 million tonnes of wheat per year. South Africa for instance consumes around 3 million tonnes of wheat a year. So, the loss of Ukraine’s exports means 8 countries South
Africa’s size will be without wheat. This is a major threat to food security.

Ukraine’s maize harvest comes to around 40 million tonnes a year – nearly triple’s South Africa’s typical harvest. Then there’s barley and sunflower as well.

At the same time, Russia is also a major wheat producer. Even before the invasion, grain prices had risen 50% over the past year, leading Russia to ban fertilizer exports to help secure a good harvest this year. While Russian exporters benefit from high oil and gas prices, Russian consumers, along with consumers all around the world, will be paying more for fuel and food in future months.

Primary agriculture producers will benefit, and so will the company’s that sell fertilizers and agricultural equipment. But I am cautious of companies like RCL Foods and Quantum Food holdings, as their input costs will rise faster than they can transfer price increases to consumers.

The longer the war stretches out, the more pronounced its effects will become on these commodity markets. Don’t ignore them – as they will affect us in the year to come.

This trio of SA commodities get boosted by the European crisis
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