Geopolitical risks continue to affect commodity market

By Burhan Sansarlioglu

ISTANBUL (AA) - The selling pressure in the commodity market in the previous weeks was replaced by an upward trend last week amid the ongoing geopolitical risks.

With the start of Russia's war on Ukraine on Feb. 24, there were fluctuations in commodity prices.

The selling pressure on commodity prices had increased with the decisions of the Fed, drop in the number of COVID-19 cases and positive expectations regarding the war.

The extremely high prices caused a decline in demand from the commodity investors.

With the latest developments, an upward trend has occurred in commodity prices again.

The Russia-Ukraine war continues to be the main risk factor on asset prices, particularly on commodity prices.

Analysts said that there is a risk that volatility in commodity prices could also increase due to declining liquidity.

The recent sharp fluctuation in commodity prices has caused investors to reduce their transactions, resulting in lower market liquidity and increased volatility in prices.

- Putin’s statement

Russian President Vladimir Putin said last week that it is pointless to receive payments in dollars or euros for the supply of goods to the US and the EU, adding: "We are planning to switch to Russian rubles for payments for natural gas sales to unfriendly countries."

Meanwhile, the US stated that it will provide an additional 15 billion cubic meters of LNG this year to reduce the EU's dependence on Russia in energy. The amount in question corresponds to the entire LNG sold by Russia to the region.

Following Putin's announcement, Brent oil and gas prices rose rapidly.

The upward trend in energy commodities continued despite the US' announcement that it would assist Europe with supply.

Last week, the barrel price of Brent oil rose 9.6%, and natural gas traded on the New York Mercantile Exchange increased 14.1%.

An attack on an Aramco oil refinery in Saudi Arabia strengthened the bullish trend in Brent oil.

Houthi rebels in Yemen on Sunday claimed drone and missile attacks on facilities run by oil company Aramco in Saudi Arabia.

- Fed's hawkish stance could not stop gold

Despite the Fed’s hawkish stance, the price of gold ended the week up 1.7% at $1,957.9 an ounce, after peace talks between Russia and Ukraine failed to reach a positive result.

Fed Chairman Jerome Powell, in his statements last week, said that they could increase interest rates by 50 basis points in May if necessary, leaving the door open for 50 basis point rate hikes for future meetings.

Fed officials, who gave verbal guidance throughout the week, made statements supporting Powell's "hawkish" stance.

- Silver rose 2.2% last week

Metals also dominated the upward trend last week. In the over-the-counter market, copper gained 0.2%, lead 4.5%, aluminum 6.2% and zinc 5.9%.

Goldman Sachs Group, in a statement last week, noted that stocks in European markets will decrease further with the restriction of Russia's exports, and predicted that there may be a further rise in the prices of copper, aluminum and zinc.

Declines in palladium and platinum prices last week also drew attention. Palladium fell 6% and platinum 2%.

Analysts pointed out that palladium and platinum have an important place in automobile production and said that the demand, which was already hit by the chip crisis, will see further decline due to the Russia-Ukraine war.

- Cotton price hits 11-year high

A positive trend also dominated the agricultural commodities last week.

Wheat traded on the Chicago Mercantile Exchange rose 3.4%, corn 1.6% and soybeans 2.5%.

While the rise in the prices of soybeans continued to be influenced by dry weather conditions in South America, an increase in Chinese soybean imports from Brazil also soared the prices.

Last week, the prices of coffee gained 0.7%, sugar 3.8% and cocoa 1.3%.

Cotton traded on the New York Mercantile Exchange rose to $1,3590 per pound, the highest level since June 2011. Its prices also reached the highest level since May 2011 at $1,4180 on Monday.

While the hot and dry weather in the US has led to a rapid rise in cotton prices, there are concerns about cotton production in West Texas, as temperatures there are expected to be above seasonal norms.

- Corn, sugar prices

Speaking to Anadolu Agency, futures and commodity markets expert Zafer Ergezen said that the Russia-Ukraine war and sanctions continue to have an impact on commodity prices, adding that the ongoing high oil prices and rising production costs influenced the commodity prices.

Mentioning the rise in cotton prices, Ergezen stated that cotton exports in the US reached the highest level of the season and demand was high.

Ergezen said: "Cotton exports in the US increased by 36% compared to the previous week and amounted to 442.7 thousand bales.

"It was the highest export of the season. China and Vietnam were the countries that made the largest purchases," he said.

Stressing that the high oil prices also led to a hike in corn prices, Ergezen recalled that corn is one of the products used for biodiesel production.

Ergezen said that the oil prices also influenced the prices of sugar, and that sugar cane is one of the raw materials used for ethanol production.

He said that coffee finished the week with a rise, noting that coffee, which had lost value in previous weeks, saw reaction purchases.

Ergezen stated that before the end of the Russia-Ukraine war, the price of coffee cannot increase permanently.

* Writing by Gokhan Ergocun from Istanbul