putin

Stock market correction

Then on 24 February, Russia invaded Ukraine. Suddenly the supply of multiple globally important commodities were hit simultaneously; whether through war or sanction, the price of oil, natural gas, wheat, sunflower oil, gold, iron, nickel, palladium, platinum and more rose to record or near-record highs.

And it’s not hard to see the result of this second shock. Politically, European dependency on Russian gas, with the continent relying on Putin for 40% of supply, means that the blade of economic sanctions remains blunted. The US, which produces enough Brent Crude to support itself, but has insufficient infrastructure to process its light, sweet crude, is seeing sky-high inflation that it cannot protect itself from.

Nickel is now in a supply shortage that cannot be solved. The subject of trading stoppages at metal exchanges in both London and Shanghai after soaring over $100,000/tonne, the metal is critical to the production of most lithium-ion batteries in EVs.

Palladium, essential to semiconductors, is also in short supply. Russia’s Nornickel is the world’s largest producer of both palladium and battery-grade nickel. And semiconductors are essential to 21st-century communications, EVs, and the internet itself.

The supply chain underpinning these critical metals has been shown to be singularly fragile. After being mined in Russia and Ukraine, much is sent to China and Taiwan for manufacturing, to then be shipped to customers worldwide.

But in Shanghai alone, China’s Communist Party has imposed draconian ‘zero-covid’ policies, keeping the world’s busiest port essentially shut to most traffic. The lockdown is so severe that citizens are being locked into their apartments behind metal fences.

Planning for potential supply chain shocks has been woeful. According to the Financial Times, inventories of aluminium, copper, nickel, and zinc at the London Metal Exchange have plunged by as much as 70% over the past year.

In the UK, the refusal to fund Gas storage facilities has seen the country at the mercy of rocketing global prices. The country has enough in reserve for only four winter days’ of use and holds only 1% of Europe’s reserve capacity. And currently, the EIA only requires members to hold a 90-day emergency supply of oil. Even the USA has historically low inventories.

Wheat, perhaps the least important commodity to the West, is critical to poorer nations. Ukraine, the ‘breadbasket of the world,’ together with Russia, export more than a quarter of the world’s wheat. And Russia produces around 15% of the globe’s fertilizer.

With much of this wheat previously destined for some of the poorest countries on Earth, the risk of widespread famine is increasing.

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