Commodities prices are set to post their biggest weekly rise in almost half a century as the war in Ukraine continues to threaten the global economy.
Since Russia’s invasion last week, prices in a number sectors have spiked amid fears of supply disruption.
The shuttering of Ukrainian ports, fighting in several major cities, and widening sanctions against Russia from the West, have led buyers of oil and gas, crops, and metals to look for alternatives elsewhere.
An alleged attack on a nuclear power plant in Zaporizhzhia in Ukraine on Friday has also helped to boost commodities to their fastest surge since 1974. The plant is the largest nuclear power plant in Europe and the ninth largest in the world.
Analysts at ED&F Man Capital Markets said: “We are seeing the commodity melt-up continue with no sign of a let-up.”
Brent crude oil (BZ=F), the international benchmark, climbed to over $119 (£89) a barrel to a 10-year high on Thursday.
It briefly touched $119.30 at one point, its highest level since March 2012, before later retreating slightly meaning Brent has gained $20 in just a week since Russian troops pushed into Ukraine.
West Texas Intermediate (CL=F) was also trading above $115 on the day, its highest since 2008.
Oil prices rose to $114 on Friday but later retreated to just under $112 a barrel, up 1.9% on the day. They are set for their strongest weekly gain since mid-2020.
It comes as the US has targeted Russia’s oil refining sector with sanctions, with the possibility that its oil and gas exports will be next on the list.
JP Morgan believes that Brent crude could end the year at as much as $185 a barrel if Russian supply continues to be disrupted.
In the short term, the scale of the supply shock is so large that oil prices need to reach and stay at $120 a barrel for months to incentivise demand destruction, it said.
Ukraine and Russia are both big agricultural producers, with the former often dubbed the breadbasket of Europe.
Together they account for just under 30% of global wheat supplies, while supplying half of the world’s sunflower products, such as seeds and oil.
Analysts at Rabobank have warned that a full-scale war could impact half of Ukraine’s grains production and double global wheat prices.
“It’s a very important staple food around the world, so even a relatively small disruption in supplies can have a large effect on prices,” said Patrick Westhoff, director of the food and agricultural policy research institute at the University of Missouri.
Wheat prices (ZW=F) hit a fresh 14-year high on Thursday, with Chicago futures closing almost 22% higher at $12.89 a bushel.
In Asia on Friday, Chinese wheat prices jumped 6% to an all-time high of 3,595 renminbi a metric tonne.
The Chicago Board of Trade’s most-active wheat futures contract has climbed 40% this week alone, the biggest weekly gain on record, while corn is 16% ahead and soybeans have added 5%.
Large amounts of gas are piped from Russia through Ukraine to the European Union, meaning that disruptions pose risks of shortages and will add to inflationary pressures.
Russia’s key role as an exporter of oil and gas is driving more chaos in energy markets, while the region's importance for other key commodities means panic is spreading through markets.
Benchmark European natural gas (NG=F) prices jumped as much as 20% to €198 per megawatt-hour on Thursday, before swinging abruptly back down.
The Dutch April gas futures contract has also gained more than 12% to €186 per megawatt hour, setting a new record, while the UK equivalent also approached the record high hit at the end of last year.
It comes as Russian energy giant Gazprom is sending gas intermittently via the Yamal-Europe pipeline, while volumes continue to flow through pipelines crossing Ukraine despite the conflict.
On Friday, British wholesale natural gas for next-day delivery is nearly 3% higher at 395p per therm.
Watch: Why are gas prices rising?
Aluminium and nickel
Aluminium (ALI=F), which has also hit several fresh record peaks this week, is heading for the biggest weekly gain on record, up more than 13% so far, as fears of supply disruption deepen.
The metal touched an all-time peak of $3,850 a tonne on Friday while benchmark nickel also rose 2.7%, hovering close to a seven-year high of $27,976 a tonne.
Russia is a major producer of both aluminium, nickel and other metals.
"We've seen aluminium and nickel up 30% since the beginning of the year, and that will ultimately be passed on to consumers when you buy your drinks can made of aluminium, or when you make renovations to your house and you need copper for your wiring, all of those prices do go into the overall inflationary pressure,” Matthew Chamberlain, head of the London Metals Exchange, told the BBC’s Today programme on Friday.
Meanwhile, Soni Kumari, an analyst at Melbourne-based ANZ bank, said: “Aluminium and nickel are energy intensive metals and higher energy prices would further push the cost curve. This raises the risk of more European smelters suspending their production or postponing their restart plans.”
Palladium and steel
Palladium extended gains to a more than seven-month high this week on concerns over potential supply disruptions.
Spot prices of palladium, which is used by automakers in catalytic converters to curb emissions, rose 4.1% to more than $2,770, its highest level since mid-July last year.
Russia produces around 40% of the palladium mined globally.
"Palladium is the one commodity from Russia that accounts for a sizable amount of exposure to the country, so it is in the sweet spot in terms of its impact," ED&F Man Capital Markets analyst Edward Meir said.
Meanwhile, Ukraine’s steel makes up about a tenth of Europe’s imports, so any disruption to mills or shipments will also tighten the continent’s already strained market and help keep prices high after they recently reached a record.