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What is true for oil and natural gas in the Russia-Ukraine conflict is increasingly becoming true of all commodities.
A post this week in the Economist outlines how Russia’s oil and gas exports are grinding to a halt, at least as far as the spot market is concerned. Longer-term oil and gas pipeline contracts are still flowing.
However, The Economist explains several dynamics are freezing up exports of crude oil and liquefied natural gas (LNG) cargoes by sea.
The first is worries about counterparty risk in making payments for exports as financial sanctions prohibit dealings between some 70% of Russia’s banks and the rest of the world. There is also the prospect of further escalation to those banks.
Meanwhile, there are fears cargoes will not get shipped. Ship owners are shunning Russian ports. In addition, marine insurance and banks are turning down cover over worries about reputational risk.
Furthermore, buyers are scrambling to switch supply chains to alternative sources. In short, they fear the situation will only get worse as Russia doubles down its invasion, resulting in greater loss of life and, hence, harsher sanctions to come.
A similar situation is playing out in metals markets.
End users are demanding importers and traders supply from alternative countries to Russia. They fear that when goods are finally ready for export from Russia, they will not be delivered due to any or all the above barriers.
In interviews with consumers, MetalMiner has seen this playing out in real time this week in Europe. There is a general expectation the aversion to Russian metal will only get worse.
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This may in part be contributing to further rises in conversion premiums from European manufacturers of semi-finished products. This comes on top of rising primary ingot and billet prices and lengthening delivery lead times. Some European mills out to nearly the end of 2022.
In such an environment, the sad conclusion is metal prices have — for the time being, at least — only one way to go.
By AG Metal Miner
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