Vladimir Putin’s incursion into Ukraine and the international condemnation that followed haven’t put a dent in Russia’s exports of gas and raw materials.
The world’s largest energy producer shipped 2 percent more gas to Europe in the first three months of 2014 than it did in the same period last year, government data show. Diesel output for export increased, while cargoes of grains, palladium and nickel either climbed or were about the same. Russia’s crude oil exports fell 0.2 percent from last year.
Economic sanctions from the U.S. and European Union haven’t dimmed demand for what Russia can sell even as price increases betray investors’ anxiety over future supplies. Any plan to pinch the country’s trade to punish Putin for his March annexation of Ukraine’s Crimea peninsula would have to overcome Europe’s dependence on Russian gas and China’s appetite for the country’s metals.
“Investors are paying more for those commodities where there’s perceived to be a greater risk of supply disruption,” said Caroline Bain, an analyst at Capital Economics in London. “The data prove it hasn’t happened yet, and if tensions subside, those risk premiums could diminish.”
Last year, Russia produced 42 percent of the world’s palladium, used in pollution-control devices in cars, and was the second-largest source of refined nickel, a component in stainless steel. At the same time, China was the world’s biggest metal importer.
Russia’s export machine keeps rolling even as the International Monetary Fund said last month that the country’s economy has begun to shrink.
The crisis in Ukraine escalated in February, when pro-European protesters ousted pro-Russian President Viktor Yanukovych after he quashed a free-trade agreement with the EU. Putin, the Russian president, seized control of Crimea in March, triggering sanctions. Clashes between pro-Russian militants and Ukrainian military in the eastern part of Ukraine have continued while Ukraine secured a $17 billion aid package from the International Monetary Fund to avoid collapse.
The U.S. and Europe have mostly ordered economic penalties against Russian individuals in retaliation for the country’s incursions in Ukraine, stopping short of targeting its biggest companies shipping energy and commodities.
While gas and oil prices have fallen since the end of February, other commodities rallied. Nickel jumped about 40 percent and palladium rose 8.4 percent.
U.K. natural gas, a benchmark for Europe, closed at 46.12 pence a therm yesterday ($7.80 a million British thermal units) about 18 percent lower than at the end of February. Brent crude, a benchmark for global prices, traded at $107.69 a barrel, compared with $109.07 at the end of February.
Russia’s energy shipments are unlikely to be curbed because the country and its Western buyers are too dependent on each other for there to be an interruption, Bain said. Europe imports about 30 percent of its gas from Russia, half of which crosses Ukraine. Other Russian commodities are less dependent on demand from Europe or the U.S., cushioning the impact of any disruptions, she said.
Russia has been building trade ties with China, including long-term oil deals valued at hundreds of billions of dollars, to tap Asia’s biggest energy consumer as the European economy slowed. China is Russia’s largest trading partner with $95.6 billion of turnover in 2012, followed by Germany, according to data compiled by Bloomberg.
Military conflict or a prolonged escalation in Ukraine could lead to tougher measures and even cargo disruption. European Union preparations for tougher measures that would affect broader parts of the Russian economy are “very advanced,” Maja Kocijancic, spokeswoman for European foreign-affairs chief Catherine Ashton, said April 28 in Brussels. The U.S. has warned that it also is prepared to levy stricter penalties if Putin escalates the conflict by sending troops into Ukraine.
“The situation in the Ukraine is still causing some anxiety in the commodities sphere,” Myrto Sokou, an analyst at Sucden Financial Ltd. in London, said by e-mail. “It seems the Ukrainian crisis has lasted much longer than initially expected. Until there is a clear resolution to the issue, we expect a possible reduction in the Russian actual flows, especially in oil and base metals sectors.”
The commodities that appreciated most in price are those where supply disruptions were already happening elsewhere in the world, magnifying any impact if Russian exports were to be cut, according to Andrey Kryuchenkov, a London-based commodity trade strategist at VTB Capital, Russia’s biggest investment bank.
Nickel traded at a two-year high of $20,500 a ton today after Vale SA suspended activity in New Caledonia, stoking concern that supply might fall short of demand. An Indonesian ban on exporting ore to make the metal is also boosting prices, according to Bain of Capital Economics.
Palladium rallied to $805.39 an ounce today from $742.75 on Feb. 28. A South African mine strike has contributed to a shortage of the metal, Kryuchenkov said.
Wheat traded in Chicago climbed 22 percent to $7.3225 a bushel since the end of February.
Whatever the reason for the price gains, plunging shipments from Russia isn’t one of them. The country exported 51,600 tons of nickel in the first quarter, about the same as the same period last year. Grain supplies, which were affected by drought in 2013, expanded more than sixfold to 2.01 million tons in March. Palladium to Switzerland, an indicator of Russia’s total shipments, fell by three kilos to 201. March output of diesel for export rose to 4.02 million tons from 3.27 million.
“So far we haven’t seen any disruption,” Kryuchenkov said. “We’ve only seen fear driving the market.”