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"Commodity Chaos Is Threatening The Global Economy" by Tsvetana Paraskova

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  • Global supply of key food and energy commodities is starting to impact the global economy. 
  • Rising core inflation and hawkish Central Bank policy could further impact economic growth.
  • The Global Price Index of All Commodities has more than doubled since its pandemic low in Q2 2020.

Commodity Chaos Is Threatening The Global Economy

By Tsvetana Paraskova - Apr 14, 2022, 5:00 PM CDT
  • Global supply of key food and energy commodities is starting to impact the global economy. 
  • Rising core inflation and hawkish Central Bank policy could further impact economic growth.
  • The Global Price Index of All Commodities has more than doubled since its pandemic low in Q2 2020.

Businesses and consumers are already feeling the impact of the rally in commodity prices of everything from crude oil to grains and metals. The year’s highly volatile commodity markets, roiled by the Russian invasion of Ukraine, are complicating real-world economic growth prospects and are raising food and energy prices for consumers globally.  The surge in commodities, including crude oil, natural gas, wheat, soybeans, and industrial and precious metals, have already hit consumer prices globally, with inflation at a 40-year high. This has prompted the Fed to start raising interest rates to tame inflation, with more rate hikes expected in the coming months.  

Commodity Inventories “Critically Low” 

Globally, the supply of commodities of all kinds is lower than the demand. 

“Inventories across energy, agricultural and metals are critically low everywhere,” Tracey Allen, commodities strategist at JPMorgan Chase & Co, told Ryan Dezember of The Wall Street Journal. JPMorgan sees commodity prices staying elevated through the end of next year.  

The supply of commodities could head even lower if the Russian war in Ukraine disrupts more materially exports of energy products out of Russia and/or wheat and corn exports out of Ukraine, the so-called “breadbasket of Europe”, as it is one of the world’s top exporters of corn, wheat, and vegetable oils. Reduced exports of Ukrainian agricultural commodities could raise food insecurity in many countries in South Asia, Western Asia, and Africa, IHS Markit said last month. 

Related: Yergin: Europe Gears Up To Sanctions Russian Energy Supplies
Over the past three years, Russia and Ukraine combined accounted for around 30 percent and 20 percent of global wheat and maize exports, respectively, the UN said last week when it noted that the war resulted in a fresh all-time high in global food prices. The FAO Food Price Index averaged 159.3 points in March, up 12.6 percent from February, when it had already reached its highest level since its inception in 1990, the UN Food and Agriculture Organization (FAO) said. The FAO Food Price Index tracks monthly changes in the prices of a basket of commonly traded food commodities. Last month’s prices were 33.6 percent higher overall compared to March last year. 

“The prospect of continued supply disruptions from Ukraine this year together with US and South American weather concerns as well as the mentioned rise in the cost of fuel and fertilizers will likely lead to another year of tightening supply,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in a weekly commodity market update last week. 

The commodities sector overall saw the best quarter ever in Q1 2022, Hansen noted. 

“During the first quarter, war and sanctions turbocharged an already strong performing sector, resulting in the Bloomberg Commodity Spot Index registering a 24% gain, its best quarter in living memory, thereby almost eclipsing the 2021 gain of 26.5%, the best annual performance since 2000,” he said. 

Speculators Pull Out Of Oil & Gas Markets 

“The war in Ukraine and increasingly tough sanctions against Russia have uprooted multiple supply channels from crude oil and gas to key industrial metals as well as food commodities such as wheat, corn, and edible oils,” Hansen says. 

The market turmoil in commodities, the extreme volatility, and the futures exchanges raising initial margins significantly after Putin’s war in Ukraine began have led to an exodus of speculators from oil futures. The lower liquidity in the paper oil market exacerbated the volatility to the point of some traders saying in March that “the market is untradeable.” 

The high margin requirements raised the liquidity needs of commodity trading firms, which trade physical barrels around the world. Via futures contracts in commodities, trading houses hedge against risks. Without commodity derivatives, many traders would not be able to move physical volumes of oil.    

Related: How Egypt Could Become A Critical Energy Hub

“We need a fully-functioning commodities futures market and what we’ve observed is a decrease in open interest. Assuming the situation does not normalise, there will be consequences of this inefficient futures market into physical,” Christophe Salmon, CFO at Trafigura, said at the FT Commodities Global Summit last month.

The Global Price Index of All Commodities has more than doubled since its pandemic low in Q2 2020, pushing 62 percent higher than its average during the last business cycle, Jim Glassman, Managing Director and Head Economist for Commercial Banking at JPMorgan, said this week.

Even if peace is reached in Ukraine, markets are likely to price in political risks for commodities such as oil, wheat, corn, nickel, and palladium, according to the economist.  

“Futures markets anticipate oil prices to remain elevated for years,” Glassman noted. 

Consumers are already feeling the pinch from high energy prices because oil price spikes almost immediately lead to higher prices at the pump.

“For every $42 rise in the price of a barrel of crude oil, the average household will spend an extra $500 annually on gasoline,” JP Morgan’s Glassman says. 

Businesses dependent on raw materials and transportation could find the coming months challenging. If the rising cost of commodities and oil starts to spill over into core inflation, this could compel the Fed to plan more interest rate hikes, which could cool the economy, the economist noted. 

By Tsvetana Paraskova for

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I have said this repeatedly in the past.  I will say it again...

It is my contention (the short version)…

EUROPE and its coming destruction.

The first step is to destroy Europe.  It is by design. That WILL OCCUR…Europe will be in shambles during the coming years.   The U.N. is a dynamic tool of the World Economic Forum.  This Ukraine-Russia crisis emphasized by the United States is designed to facilitate the destruction of Europe.

In the beginning, the U.S. will appear to benefit especially as its currency remains dominant with no threat as a result of trading partners such as Germany and Russia who might exchange mutual currencies.

The Ukraine-Russia crisis needs to occur now, prior to the destruction of European currencies when The Federal Reserve raises rates.  This crisis destroys any viable energy source within economic reason putting the population under tremendous financial hardship.

People should realize that The European Parliament is impotent.  Nation Members of EU Parliament have no real powers…look it up and understand their structure.  It was by design.   And also grasp that tied to the EURO currency there have been negative interest rates but also mandates that Pension Funds must own these type of bonds. (the imminent destruction of pension funds)   The insane Energy Policies of Europe have not been ordained by rational thinking, but by deceptive influence from powerful interests.

Anyone can put 2 + 2 together to forecast the coming decade.  What will happen to European currency and the economy when The Federal Reserve raises interest rates?  What will happen to prices when the European energy sector is in shambles?

The famous quote of the 4th Industrial Revolution of the World Economic Forum for predictions of the year 2030 is  “You will own nothing and be happy”.

The global policies from the Covid-19 Pandemic were not about trying to help people’s health, but they were about deceptively installing control factors upon the populace.  The installed control factors are already there.

Eventually, there will be Central Bank currencies which will be tied to a person's Digital ID.  All their money will be tied to this Digital ID.  Just like ESG for corporations, the Digital IDs will have a "social score".  If an individual gets out of line from the official narrative, their score will go down.  Their money can be turned off, just like what happened in Canada recently with thousands of personal bank accounts locked.

There is much more to this agenda.  If you read the documents at the World Economic Forum, they tell you the plans.

3-D Chess not the 2-D Chess of Ukraine-Russia

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do not panic............ there is another source, free of charge, if they know how to capture it........


@Tom Nolan

no one can destroy EU if it is not their own doings e.g.

a) social issues and instability

b) declining ability to make sound judgements

c) over pride with less capability due to easy lives

d) wasteful, because it is not their hard earn money that they splash or manage

e) etc

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21 hours ago, specinho said:

no one can destroy EU if it is not their own doings

It is entirely their own doing.  The EU will be devastated by 2030.

However, it is the Overlords who are making the insane policies which will decimate Europe.  It is not the people themselves...and in fact, the EU parliment is not a democratic structure (the heads are appointed).  The UN (NATO) is a driving force which is tied to the World Economic Forum.

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On 4/18/2022 at 11:21 PM, Tom Nolan said:

It is entirely their own doing.  The EU will be devastated by 2030.

However, it is the Overlords who are making the insane policies which will decimate Europe.  It is not the people themselves...and in fact, the EU parliment is not a democratic structure (the heads are appointed).  The UN (NATO) is a driving force which is tied to the World Economic Forum.

one would not imagine people of strong minded and self preservation in EU would allow themselves to be devastated or decimated? Many countries in EU generally hold the opinion that their systems are the best, their mankind are the most superior, their ideologies and methodologies are incomparable. Therefore, they prefer single breed of race, closed minded societies and countries to prevent contamination from other races or other nationalities, prefer no change to the systems without knowing how hard their citizens are living,  nor the social issues, with as high as 60 to 80% of mental illness rate reported generally. 

Regardless of who and what policy is made, so far, not one is probably perfect. Each short term solution based on one problem would become issue itself soon after implementation. This cycle of playing at the end of hair without the ability to see the overall picture makes many things fall out of targeted range at the end of effort.

Not sure if it is right to revise the old settings before the proteges of easy lives took over. Old settings were set by elders during and after much hard time. They were generally more humane, compassionate/ thoughtful, using much common sense that is running short nowadays.

In addition, instead of trying to blame and ruin others worrying about their own short comings or agenda being known, it might be better for the youngs or proteges of easy lives to live hard lives with minimal help like their ancestors. This method could build basic character, mentality, attitude, effort etc required to lead a humane society or country.

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New Lockdowns In China Are Hindering Global Steel Supply

By Ag Metal Miner - May 03, 2022, 1:00 PM CDT

It’s first-year economics: everything comes down to supply and demand. Historically, the push and pull between these two massive market forces are cyclical, and that includes steel. When you have more demand than supply, prices go up. Eventually, the prices get so high that people stop buying. After a while, the steel supply builds up, and prices plummet, leading to a surge in demand once again.

It’s a familiar dance – at least, it used to be. That was before the war in Ukraine, China’s ongoing lockdowns, and global supply chain issues. Suddenly, having enough steel supply to meet even lowered demand is not a foregone conclusion. Still, economists aren’t the sort to simply throw up their hands and say, “whatever happens, happens.” Instead, they are constantly mapping out potential scenarios.

In this article, we’ll talk about some of the facts and factors at play.

Is Demand Really Dropping?

We’re one-third the way through 2022, and it seems that no global crisis is too great to completely stave off steel demand. After a year in which steel prices hit historical highs and demand grew by an unexpected 2.1%, many insiders pointed to a “return to center.”

Indeed, in April, the World Steel Association forecasted a meager 0.4% increase in global demand. However, the organization added that they expected this number to slowly increase to 2.2% in 2023. The problem?  Most of these estimates were made long before the current conflict, lockdowns, and supply chain failures.

Is demand really shrinking as much as forecasts predicted, or is the reduction in supply simply making it appear that way? It’s still too early to call. What we do know is that 2022’s supply woes are pushing up steel prices from the back end. This means that the cost relief we all expected simply isn’t coming. Of course, this raises a lot of questions about that 2.1% prediction for 2023.

Steel Supply Remains the “X Factor”

Considering all the predictions that 2022 would be a “dead spot” for steel demand, the price action has been stunning thus far. As expected, the year kicked off, with prices quickly retreating from 2021’s historic highs. But by the time March arrived, steel prices had seen their biggest month-over-month increase ever.

This reversal mostly hinged upon Russia’s invasion of Ukraine. The WSA ranks Ukraine as the 13th largest steel producer in the world, as well as the fifth largest exporter of iron by volume. Obviously, the war has devastated the country’s ability to produce. In fact, at the time of this writing, the Azovstal Iron and Steelworks in Mariupol – once capable of putting out 5.9 million tons of product per year – is serving as a shelter for besieged Ukrainian citizens.

The effects of the war have also led to major embargos, sanctions, and boycotts on Russian energy and commodities. Russia is #5 in global steel production, and its metal and coal exports were one of the first things on the chopping block when the EU started imposing sanctions. This means less Russian steel in Europe and less Russian power for European countries to make their own steel. Related: The Inevitable Decline Of Russia’s Oil Industry

This would all be bad enough news for steel supply if it weren’t for the recent reports coming out of China, which produces some 56% of the world’s crude steel. Even back in 2021, the steel demand forecast was lowered based on weak economic data. But COVID lockdowns, crowded ports, and decarbonization efforts are choking the eastern giant’s production beyond our wildest fears.

Filling Gaps in Steel Supply

Just last week, MetalMiner posted an article about how India might further establish itself on the global steel stage. After all, despite having a firm grasp on the #2 spot in global steel production, the subcontinent puts up a mere around 1/10th of China’s numbers.  In short: there’s room for improvement. And if there was ever an opportunity to grow market share, this is it.

According to representatives from the Indian steel industry, the problems plaguing Europe and Asia have put the pinch on other major producers. They also claimed that India is currently the only one of those producers stepping up to the plate. In fact, a report from the India Brand Equity Foundation (IBEF) stated that the country’s crude steel production should increase 8-9% year over year in 2022.

So far, that number has averaged closer to 6% due to the increased costs associated with production. Still, with Japan, South Korea, Germany, and other Top 10 producers reporting negative growth, India’s efforts are commendable. How far will this go in making up for the shortfall caused by Russia, Ukraine, and China? Only time will tell.

Second Tier Steel Suppliers Need to Step it Up

Obviously, there’s no timeline in place for either the war or China’s economic woes. This means that other countries will need to join the effort to replenish global steel supply. If consumer demand remains, strong, (a big if) prices could continue to remain supported, at least in theory.

Many of these countries (Taiwan, Italy, Vietnam, Mexico, and France) have their own economic and supply chain woes. Still, Brazil – arguably one of the most imperiled economies in the West – has managed a rather impressive recovery after dropping the ball at the beginning of the year. With any luck, this will help ignite a trend.

By AG Metal Miner

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