Escalating Geopolitical Conflicts Support Global Commodity Prices

SHANGHAI, Mar 2 (SMM) – The global commodity prices started to rise from the first half of 2020. There are two dominant factors driving the price increase:

1) The lower supply, demand recovery, and liquidity flood from H2 2020 to Q1 2021.

2) The current COVID-19 pandemic and Russia-Ukraine conflicts restricted the supply.

In this context, the impact of the geopolitical situation on commodities is also reflected on the supply side. For example, the turmoil geopolitics and complex supply and demand situation keep driving up the crude oil prices. In the medium and long term, the prices of crude oil are expected to gradually peak, but the current geopolitical factors such as the military conflicts between Russia and Ukraine may continue to boost the prices and affect the market sentiments.

If there was no war, the rising prices would be beneficial to Russia and other oil-producing countries. In this case, the US economy would be harmed amid higher inflations and accelerated shrinking of balance sheet. However, the war has taken place, and Russia loses buyers under the sanctions imposed by US and Europe. Only other oil-producing countries have reaped the benefits. The influx of funds into the US market for risk aversion can hedge against the adverse impact of the Fed's shrinking balance sheet and raising interest rates. US is happy to see it.

Amid the worsen tension between Russia and Ukraine, the risk aversion sentiments in the market are fermenting, and the appetite for risk investment is suppressed, weighing on the copper prices. However, the current overseas fundamentals remain normal. As of February 25, 2022, the LME copper inventory stood at 74,900 mt, a year-on-year decrease of 4.7%, which has provided certain support for the prices. Hence the copper prices are resilient.