Analysts, economists and brokers are all warning that businesses may face an increase in the cost of a range of raw materials, commodities and natural resources as a result of the war in Ukraine and the sanctions being imposed on Russia.
Whilst much of the media coverage is looking at gas, oil and fuel price rises, some of the main commodities, exchanges and brokerages are witnessing significant price jumps in other areas, such as metals.
The London Metal Exchange in particular has noted that copper, aluminium and nickel are all up, hitting historic heights or increasing in double digit percentages by the week; and other commodities have jumped significantly since the Ukraine conflict began. In a recent interview, the head of the London Metal Exchange has flagged the following price shifts:
- aluminium and nickel up 30% since the beginning of the year
- Copper prices are at five-year highs
A Global economy
Regardless of each countries own needs for raw materials and natural resources, many of the prices are actually set on the global markets. So, whilst one country may not have a major reliance on Russia or Ukraine for its actual supply, the price it pays for materials sourced from elsewhere in the world, are directly impacted by the situation in those countries.
However, the price rises are not purely linked to the war, as many of the resources or commodities found in Russia and Ukraine can be sourced from different locations. The increases are powered by more indirect factors such as long term supply and the knock on effects of price rises in other sectors. For instance, the fuel used to run the machines to harvest wheat or mine raw materials will ultimately impact the cost of the wheat and minerals.
Commodities increases will hit consumers
The further pressure on businesses will ultimately trickle down to consumers. Not everything rises as quickly as fuel and energy prices and it may take time for the full impact of these prices to take effect, leading economists to predict inflation now peaking at 10%, up from the previous forecast of around 7%.
Because of manufacturing lead times, the raw material prices of today do not impact the prices you pay for goods already in shops or distribution warehouses. But those items being manufactured in the weeks and months ahead will increase in price. Examples given include drinks cans and canned food, wiring and building materials (nails, steel and screws) and cars – a sector already under pressure due to a shortage in supply of chip sets.
Economists say this will ultimately end up in the baskets of consumers and hitting drivers and homeowners.