VBKOM News VBKOM News Blog

Russia-Ukraine conflict: The effects on commodities and supply chains

The global pandemic influenced the world’s economy by disrupting supply-chains through shortages and price inflations.

The Russian invasion of Ukraine has disrupted global supply chains even further. The multitude of sanctions and boycotts imposed on Russia by multiple Western countries has led to worldwide fears of energy shortages, possible famine, and inflation.

Some of Russia’s greatest exports to Western countries pre-sanctions include:

  • Crude and refined oil
  • Coal
  • Wheat
  • Platinum Group Metals
  • Copper
  • Diamonds
  • Fertilizers

With the Ukrainians defending their country, exports to Western countries have also halted, and these exports include:

  • Steel
  • Coal
  • Petroleum products
  • Chemicals
  • Grains (barley, wheat and corn)

The South African Trade Relationships

The trade relationship between South Africa and Russia is less affected than the rest of Europe and the Americas. The top imports from Russia to South Africa in September 2021 were fertilisers (nitrogenous, mixed mineral and chemical), petroleum products and medicines, while South Africa mostly exports citrus fruits, nuts, manganese ore and inorganic chemical products.

South Africa’s trade relations with the Ukraine includes imports from the Ukraine like cereals, machinery, nuclear reactors, milling products and certain root vegetables.

Supply Chain

Disrupted Supply-Chains leading to higher prices

Whilst supply-chains have been heavily impacted by the Russia-Ukraine crisis, commodity prices could skyrocket in the short term based on the supply-concern, the infrastructure-carnage and the sanctions imposed on Russia.

The commodity prices for oil and petroleum will continue to remain above or close to USD 100 per barrel for as long as the conflict persists. Ukraine and Russia export almost a quarter of global grains, which will see massive escalations in agricultural commodities. Russia is also one of the world’s largest producers of metals, such as aluminium, titanium, palladium, and nickel. These metal commodity prices will remain high and will have significant impacts on the industrial sectors, such as the automotive and mobile industries.

The destruction of physical infrastructure in the Ukraine will also have a substantial impact on price hikes. Disruptions through Russia on land-based routes between Asia and Europe will affect Chinese companies, the European Union closure of airspace to Russian aircraft and cargo, and the cancellation of sea freight routes from the Ukraine all contribute to expected inflation of goods and services worldwide.

Worldwide impact

Some countries will be harder hit than others by the Russian-Ukrainian crisis. Some countries and industries will be crippled, while other countries and industries may be less affected that do not rely as heavily on Russian and Ukrainian exports. The ripple-effect will not be evenly spread.

Most European countries, that import as much as 40 percent of its natural gas and 25 percent of its oil from Russia, will most likely see considerable impacts on their heating bills during the last few months of the northern hemisphere’s winter.

Other countries like Egypt and Turkey, who import more than 70 percent of their wheat from Russia and Ukraine, will see even further economic strain with increased fuel and food prices.

Mining Engineering Consultants

Impact on the Mining Industry

The high metal prices since the start of the pandemic in 2020 surpassed inflation, which was driven by supply-chain disruptions caused by worldwide lockdowns. Although these high prices have bolstered profits, the further climbing commodity prices amidst the Russian-Ukrainian conflict could see mining companies face higher inflation which could slow down short-term demand and long-term growth plans.

Mining operations require a lot of energy, and with Russia being one of the biggest oil producers in the world, higher global energy prices are expected to have an impact on the global mining industry.

Apart from being a big player in oil production, Russia is one of the world’s leading producers of mineral commodities, including Platinum Group Metals, Copper, Aluminium, Iron Ore, Gold, Rock Phosphate, and mineral fuel such as Coal, Natural Gas and Uranium.

The current sanctions against Russia could see the demand for mineral commodities like PMG’s be shifted to alternative producers, like South Africa and Zimbabwe, whilst the requirement for Uranium could be filled by Canada and Australia.

The South African Landscape

The South African economy expanded by 4.9% in 2021, the most in 14 years. The Russian invasion of Ukraine will no doubt have an impact on the South African economic recovery and is likely to impact the current growth trajectory in what was deemed as a “post-pandemic recovery year” for South Africa.

Irrespective of the ever-escalating food and fuel prices, and projected price increases, mineral resources commodity prices are also projected to continue to increase. South Africa is one of the major producers of platinum group metals, base, and precious metals. The Parliamentary Budget Officer (PBO) shared during the first week of March 2022 that the economic sanctions on Russia, which includes the supply of PGM’s, may lead to an increased demand for South African PGM’s.

With the sanctions and boycotts that are currently in place, the PGM commodity prices will soar. This will have an immediate effect on income to certain countries that produce these metals but the overall higher prices will not be conducive to long-term global economic growth and recovery.

The Effect on Fuel and Food prices in South Africa

The average South African citizen will undoubtably feel the recoil effect of the Russian-Ukrainian conflict economically.

Fuel prices have already surpassed the R20 per litre-mark since the Russian invasion of the Ukraine, and projections indicate fuel prices to remain high in the months to come. The effect has on all other consumer goods and food is inevitable.

Below is a quick overview of the fuel price for 93 Unleaded Petrol, Inland, cost over a 10-year period.

Mining Engineering

Comments are closed for this post, but if you have spotted an error or have additional info that you think should be in this post, feel free to contact us.

Blog Notifications

Subscribe to be notified of new blog articles