Our reporter Wang Baokun

  With the evolution and escalation of the Russian-Ukrainian conflict, commodity prices generally rose.

Triggering risk aversion is an important reason for market volatility.

Market expectations and challenges from fundamental factors will result in continued high volatility in the prices of precious metals, some base metals, and energy commodities.

  At the beginning of this year, the market was generally optimistic about the returns of commodities. To the surprise of all parties, in just two months, the situation took a sharp turn for the worse. The escalation of the conflict between Russia and Ukraine pushed the commodities that were already at a high level even higher.

  With the evolution and escalation of the Russian-Ukrainian conflict, commodity prices generally rose.

As of February 25, the Goldman Sachs Commodity Index has risen 17.7% this year and 5.45% this month.

Among the major sub-sectors, risk aversion drove precious metal prices up. The Goldman Sachs Precious Metals Index rose 5.27% this month; the Thomson Reuters CRB Agriculture Index rose 4.77% this month, reflecting the impact of the conflicting parties in the global agricultural market.

  Among various products, the trend of energy prices is the most prominent.

The Goldman Sachs Energy Index is up 5.62% this month.

Among them, the price of Brent crude oil fell back to $94/barrel after breaking through the $100/barrel mark.

Intercontinental Exchange TTF natural gas futures, a bellwether for European gas prices, jumped about 50% on Feb. 24, before gradually easing back after hitting levels that almost doubled at the end of 2021.

  Triggering risk aversion is an important reason for market volatility.

This is especially evident in the precious metals sector.

Gold prices rose 7.58% in the month of February and hit a high of $1,936.3 an ounce on the 24th.

At the same time, the scale of gold ETFs has also increased simultaneously.

According to data from the World Gold Council, from the beginning of this year to January 22, the net inflow of spot-backed gold ETFs reached US$2.729 billion, an increase of 1.3%; however, affected by risk aversion, from January 22 to February On the 18th, the net inflow has reached as high as 4.111 billion US dollars, and the increase has also risen to 2%.

  The rising trend of precious metals is related to risk aversion on the one hand, and fundamentals on the other hand.

Russia is an important producer of platinum and palladium in the world.

The market had previously expected that in the second half of this year, with the easing of supply chain pressure, especially the recovery of global auto production capacity, palladium, which is an auto catalyst, will usher in a peak in demand.

Under the influence of the continuous fermentation and escalation of the Ukraine crisis, the spot platinum price rose by 16.93% from the beginning of the year at the highest point on the 24th.

  Supply and demand fundamentals are most evident in the energy commodity market sector.

The fundamentals of natural gas are mainly concentrated at the transportation level.

30% to 40% of Europe's gas supply depends on Russian pipeline gas.

The onshore pipeline connecting the Yamal gas field to Europe mainly passes through Poland, Ukraine and Belarus.

Only Nord Stream 1 bypasses the geographic hotspot and enters Germany via the Baltic Sea.

In the context of the Russian-Ukrainian conflict, Germany announced the suspension of the approval process for the "North Stream-2" project, and emphasized that the suspension "is not a short-term suspension."

  In this context, the remaining gas pipelines between Russia and Europe become particularly important.

If there are problems with the pipeline in the future, Europe may have two options.

One is the increase in natural gas production in Norway, and the other is the import of offshore LNG.

However, given Russia's huge gas exports to Europe, no channel seems to be able to make up for it quickly in the short term.

More critically, LNG export facilities in the United States and other countries are already operating at full capacity.

Therefore, in terms of natural gas supply and demand, as Qatar has previously stated, no one can replace Russia's natural gas supply to Europe.

Warmer weather will reduce natural gas demand and bring prices down, but the continuation of the Russian-Ukrainian conflict will inevitably cause European natural gas prices to remain relatively high.

  At the crude oil level, before the Russia-Ukraine crisis, the market’s biggest concern for supply was whether Iranian crude oil would flow into the market on a large scale this year; after the Russia-Ukraine crisis, the market’s biggest concern for supply was whether Russian crude oil could enter the market normally. European market.

  According to reports, the current Western banks have interrupted the service of providing letters of credit to traders to purchase crude oil, which has made it more difficult for Russian oil to flow into the market from the perspective of market operations.

At the same time, Russia’s crude oil exports to Europe account for nearly 50% of the total export scale, and some of them operate through crude oil pipelines passing through Ukraine. There is also uncertainty about whether Russia’s Urals crude oil can be stably transported to Europe in the future.

  At the beginning of 2022, all parties have expected that the rapidly recovering demand and the slowly recovering supply will cause the crude oil market to be in short supply throughout 2022.

Considering the relatively limited export capacity of the United States and the challenge of short-term large-scale inflow of Iranian crude oil, the continued development of the Russia-Ukraine conflict will undoubtedly further increase the tension of global crude oil supply and provide support for high oil prices.

  The high prices of natural gas and crude oil have undoubtedly pushed up energy prices in Europe, and the derivative impact of this situation is reflected in the price trend of some base metals.

In the third and fourth quarters of last year, high energy prices have caused some energy-intensive aluminum and zinc companies in Europe to shut down some production capacity.

The major smelters have been overwhelmed by the high electricity prices of crude oil, and a new round of energy price hikes brought about by the Russia-Ukraine dispute will further limit Europe's ability to supply aluminum and zinc.

At the same time, Russia is not only an important producer of palladium and platinum, but also a major exporter of aluminum and nickel ore in the world.

At a time when all parties are worried that the United States and Europe may impose a new round of sanctions on Russia, whether the base metals will be directly or indirectly affected, has been disturbing the nervousness of the market.

  Affected by the above two factors, on February 24, the price of the three-month aluminum futures contract on the London Metal Exchange rose to US$3,445/ton, far exceeding the historical high of US$3,380/ton in September 2008.

The price of three-month nickel futures contracts on the London Metal Exchange rose to $24,716 per ton, up 19.07% from the end of last year.

  Based on the above situation analysis, the future trend of Russia-Ukraine relations will have an important impact on the trend of the commodity market, and the challenges of market expectations and fundamental factors will cause the prices of precious metals, some basic metals, and energy commodities to continue to fluctuate at high levels.