You’ve probably read plenty of generic Russia commodity ex-supply versus global demand articles, but they may have left you wanting for more details. What are the Russian exports that are affected right now?
It’s trivial that commodity prices will be all over the place amid Russian sanctions and shaky monetary policies by central banks across the globe, but this is where we’re in with a chance to capitalize, because with excess volatility comes life-changing opportunity.
I’ve followed commodities for quite some time now, as it’s essential to consider broad-based input costs as an institutional-level equity research analyst. I had a look at Russia’s top exports and decided to share my thoughts on the five that everyone should know about.
Here are the top five Russian exports to the U.S. that you should know about:
- Mineral Fuels and Oil Distribution Products
- Iron and Steel
Russian Exports: Mineral Fuels and Oil Distillation Products
The title may seem like a lot to take in, but it’s just fossil fuels, with the composite’s main constituents being crude oil, natural gas, coal and petroleum. According to Trading Economics, the United States imported $18.12 billion of these goods from Russia during 2021.
It’s possible that oil and gas prices will remain elevated in the short term as the U.S. capacity utilization has reached 99.33%, with many other nations already experiencing supply issues themselves. As a market participant, you need to watch out for natural gas volatility, though, because the deposits don’t get stored for as long as oil products do, in turn causing abrupt price movements.
As to what we can expect from coal’s price (in and around $310). I see coal prices remaining elevated in the near term as global production has slowed in recent years. On the demand side, we’re experiencing many instances where nations are utilizing coal as a hybrid solution to energy shortages, such as Germany’s coal consumption increases after the government phased out nuclear power sources.
According to JPMorgan’s Commodity Research team, Russia supplies 7% to 10% of the world’s platinum. Platinum is pivotal to the energy industry and is also used as a precious metal or a by-product of consumer goods.
The U.S. imported $2.13 billion worth of Russian platinum in 2020 (latest data released), and it remains difficult to see how that void will be filled. An alternative could be to ramp up imports from South Africa, which is the world’s largest platinum producer; however, South Africa’s mineral resource supply line isn’t structured to utilize its abundance of proven resources efficiently. Its mining sector is occupied by a few big players, such as Sibanye Stillwater (NYSE:SBSW), Impala Platinum (OTCMKTS:IMPUY) and African Rainbow Minerals (OTCMKTS:AFBOF).
Platinum may remain elevated at in and around the $1,000 handle as traders get to grips with the short/medium-term supply-demand dynamics.
Russian Exports: Iron and Steel
Procuring iron and steel resources at reasonable prices is critical to any economy as they’re used across the board. If you’re trying to run a smooth economy, you need to seek absolute price advantages. Otherwise, your consumers will have to bear significant push inflation. With an ex-Russia-induced restructuring of trade, I see some of those absolute advantages disappearing in the short run and thus anticipate both iron and steel prices to stay elevated.
To provide context to my argument, global GDP is anticipated to expand by 4.4%, give or take, and Russia is one of the leading exporters of steel alloy in recent years; this will subsequently cause a drag on resources and a possible price surge.
From a price vantage point, I can’t imagine iron ore dipping much below the $150 handle simply due to supply and demand. Steel, like many commodities, is segregated where prices differ based on region. I’d imagine that North American and Taiwanese steel will surge over the coming months as the U.S. and its allies gear towards supply from non-Russian affiliated nations, causing an overwhelming demand.
Russia’s aluminum supply makes up for 6% of the global mix, and its exports to the U.S. in 2020 reached $376.04 million.
Aluminum is widely used in industrial goods, meaning that its price will likely stay elevated during 2022 due to a pull on reserves by means of higher than benchmark GDP growth. Furthermore, a surge in electric vehicle demand could be a catalyst for a multi-year aluminum bull market.
Aluminum is currently trading around $3,500 per ounce after surging higher by more than 50% during the past year; investors shouldn’t count on mean reversion here, as it’s challenging to make a case for a drawdown.
Russian Exports: Fertilizers
Fertilizer derivatives were first introduced in 2011 when the CME Group synthesized cash-settled products. Since then, various derivatives, including futures, swaps and packaged products, have been made available.
Russia is responsible for 18% of the potash market, 20% of ammonia sales and 15% of urea; it’s safe to say that people are going to need alternative sources to fill the void, especially considering the fact that you need underlying compounds such as natural gas and nitrogen to produce the end product.
How do you trade fertilizers, though? You can trade them based on type and region. I’m currently focused on U.S. urea, as I believe that the reliance on U.S. urea will proliferate in the medium term amid a urea short supply from the Black Sea region. Furthermore, urea is the most widely traded fertilizer out there, meaning that it’s where you’ll find the most price efficiency.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.