Commodity prices soar, more directors leave the boards of London-listed Russian companies, and manufacturing M&A deal is off

“After a week of businesses around the world cutting ties with Russia in protest at its invasion of Ukraine, the market is now taking a serious look at what would happen if no-one bought the country’s commodities,” says Russ Mould, Investment Director at AJ Bell.

“So far there have been no country-level sanctions on Russian commodity products, merely the decision of various customers not to buy. It seems we could be moving to the next stage whereby countries lay down rules to not buy oil and other commodities from Russia which in turn would reduce its funding for the war.

“Russia’s economy is heavily dependent on commodity exports and a decision by the US and potentially some of its European allies to ban the import of Russian oil would disrupt the global flow of certain natural resources and push up prices. The market increasingly seems to think this is a likely outcome, given how Brent Crude soared 9% to $128.76 per barrel on Monday.

“This further surge in fuel costs will intensify the inflationary pressures already causing problems for consumers and businesses.

“If a decision is made by the West to stop buying Russian oil, then it is only natural to expect other commodities to fall under the same category – hence why nickel prices have also spiked, up 26% to $36,263 per tonne. Russia is the third largest producer of nickel after Indonesia and the Philippines.

“It is worth watching the gold price which is now flirting around the $2,000 per ounce level. Should Russia see a slump in income from commodity sales, there is a real chance it could sell down some of its gold reserves to help fund the war in Ukraine. The West may not want to buy Russian gold, but China might be interested if the price was right.

“The FTSE 100 fell by nearly half the level of other markets in Europe on Monday because of its large exposure to commodities producers. While the Dax fell 4.4% and the IBEX 35 dropped 4.3%, the FTSE 100 traded 2.6% lower. Its declines were cushioned by strength in mining and oil producers, including Anglo American which rose 4.3%, Glencore which advanced 4.2%, and Shell which traded 4.7% higher.

“These companies will be able to sell their products at higher prices thanks to the current market dynamics, thus increasing their profits. However, that will only stir up greater calls for a windfall tax on earnings.”

Other Stock Market Movers

“Russian companies trading on the London Stock Exchange continue to lose board members at pace as directors realise the optics of being linked to these businesses are toxic. Polymetal saw six of its board members resign and another director has quit Evraz.

“As soon as the Institute of Directors, hardly an organisation known for its radicalism, pushed for Britons involved to take the jump this mass exodus was almost an inevitability.

“However, it will make any future rehabilitation for these stocks, which already looked unlikely, even more difficult.”

“Elsewhere, shipping firm Clarkson was a rare non-resources riser on Monday, its shares gathering knots at pace as it posted an impressive set of record results. Its leading market position should stand it in good stead as the current supply chain crisis, only exacerbated by the war in Ukraine, increases the importance of its services.

“The conflict is reducing risk appetite in boardrooms as well among investors with Spectris doing a rapid 180 degrees turn on its pursuit of Oxford Instruments. It is telling that Spectris, despite still seeing merit in the combination, has decided to end its offer.

“Going ahead with a £1.7 billion outlay at a time of such acute uncertainty might have strayed over from being bold to foolhardy.

“Oxford, for its part, makes a point of noting the initial approach was ‘unsolicited’ and, who knows, once the initial pain from a big slump in the share price eases, it may represent a better outcome for shareholders over time.”

These articles are for information purposes only and are not a personal recommendation or advice.