Impact of the Russia and Ukraine conflict on metal prices
Institutional investors, traders, hedge funds, and others, are watching metal prices and paying special attention to the possibility of a renewed war between Russia and Ukraine. Russian troops have been amassing at Ukraine’s borders, and from our vantage point it can certainly be an indication of a possible war. Political and economic pressure has surfaced, and is being utilized as a disincentive for Russia to proceed with such, however matters of this nature are impossible to predict with certainty.
“At the moment, Russia has a lot of equipment pre-positioned along with its own border with Ukraine,” said Janes, a global agency for open-source defense intelligence. “(This) reduces the amount of time it requires for them to fill that area with more forces if they decide to fight because all of their heavy equipment’s there.”Troops can be deployed in less than 72 hours, the agency said, since they need only be sent from their bases by plane or train across the country.Russia is also in the process of deploying “quite a sizable formation” in Belarus from its Eastern Military District (EMD), which extends from Russia’s Pacific Coast to Siberia, Janes said. This formation, which Janes first detected moving west early this month, appears to include troops, logistics and communications resources as well as military equipment.
“Commodity prices could soar if the Russia-Ukraine crisis escalates,” said Warren Patterson, head of commodities strategy at ING Economics Jan. 21. “As tensions between Russia and Ukraine grow, so does the risk that it spills over into global commodity markets. Russia is a commodities powerhouse, with it being a key supplier of energy, metals and agri.”
US president Joe Biden had stated to a news conference Jan. 19 that the US and NATO allies were prepared to deliver “severe costs and significant harm” via economic sanctions if Russia invades Ukraine, where it has 100,000 troops amassed at the border.
LME cash copper broke through the $10,000/mt barrier earlier in January for the first time in three months before slipping back, rising again in the week starting Jan. 16 to close Jan. 20 at $9,925/mt. Aluminum has remained in recent days above $3,000/mt. Both metals continue near multiyear highs amid supply concerns.
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Russia is estimated to hold around 10% of the world’s copper reserves and is a major producer of aluminum — with producers including Rusal accounting recently for some 6% of global world supplies. Nornickel is a major producer of nickel and platinum group metals, key to energy transition.
Copper prices have been around the region of their all-time highs, closing at $4.31/lb as of this article. A spike in the conflict between Russia and Ukraine would certainly have an impact on metal prices, particularly with copper, as potential sanctions and supply constraints act as tailwinds for the metal dubbed as “the new oil” by Goldman Sachs.
How to play this
A great way to play this is to purchase junior copper stocks. This acts as a leveraged play on the metal, and has the benefit of the immense upside available to small-caps / penny stocks. We remain bullish on Grizzly Discoveries (TSXV: GZD) and their Robocop and Greenwood properties. Their Robocop property lies on the Purcell Supergroup, which has played host to past-producing stratabound Copper-Cobalt mines. Robocop has shown high grades of both copper and cobalt. Cobalt is extremely valuable in the production of electric vehicle batteries. It is an expensive and rare component, of which more than 65% of the global supply originates from the Democratic Republic of Congo. Robocop has had sample grades like 1.41% Cu, 0.62% and 0.134% Co, 1.19% Cu, with silver credits.
GZD is trading at an extreme discount at 6.5 c. Our research shows this stock to be worth at least 15 c using conservative estimated and based on the inevitable demand increase of both copper and cobalt in the green transition. You can read our full report here: https://www.tsxvresearch.com/research/gzd-cobalt-copper-tsxv/