Commodities Rally to Highest in Six Weeks on Ukraine

Commodities climbed to the highest level in almost six weeks on concern that tension between Russia and Ukraine will curb supplies of nickel to wheat.

The Standard & Poor’s GSCI gauge of 24 raw materials rose as much as 0.8 percent to 657.2232, the highest since March 4, and was at 653.659 at 12:08 p.m. in London. Nickel increased as much as 2.8 and palladium rose to the highest since 2011. Wheat climbed 2 percent.

Russia and Ukraine traded barbs at an emergency meeting of the United Nations Security Council, reviving concern that possible new sanctions may hurt commodity shipments from the biggest palladium supplier and largest exporter of energy. Russia is also home to OAO GMK Norilsk Nickel, the largest producer of the refined metal. While prices advanced, Goldman Sachs Group Inc. said trade measures to curb exports of farm products and energy from Russia aren’t likely.

“Supplies of commodities including nickel, natural gas and wheat, of which Russia is a big exporter, are at risk,” said Diego Parrilla, chief investment officer of Singapore-based Nareco Advisors Pte, an asset manager.

Nickel surged to as much as $17,885 a metric ton on the London Metal Exchange. he metal, which has also been buoyed this year by Indonesia’s ban on raw ore exports in January, is heading for an 11th day of gains. Palladium climbed as high as $815.10 an ounce and is 13 percent higher this year.

Goldman’s View

Sanctions on Russian energy and farm products are not likely as its energy supplies are too important for Europe to risk disruption, and most of its food exports are sent to developing economies, Goldman analysts led by Jeff Currie said in a report dated yesterday. Still, steel, copper and aluminum exports may be targeted and Russia may also consider so-called counter sanctions on nickel and palladium, Currie wrote.

In the worst-case scenario, where energy flows from Russia are disrupted, the European natural-gas market may tighten, while the U.S. and OPEC would raise crude production, Currie said. Russia accounts for 13 percent of global oil output and 14 percent of natural-gas production, according to Goldman.

Brent crude increased as much as 1 percent to $108.38 a barrel. U.K. natural gas jumped 2 percent. Gold futures rose as much as 0.9 percent to $1,329.92 an ounce and wheat climbed to $6.805 a bushel in Chicago.

Developing Nations

Russia is the fifth-biggest exporter of wheat followed by Ukraine, according to the U.S. Department of Agriculture. It is unlikely that any sanctions would be placed on Russian food exports given the humanitarian dimension and that most shipments are sent to developing nations, Goldman said.

The UN’s emergency meeting of the Security Council was convened at Russia’s request after Ukrainian security forces clashed with pro-Russian gunmen in the east. Last month, the U.S. and EU responded to Russia’s annexation of Crimea by blacklisting Russian officials, businessmen and a bank.

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