Wood Mackenzie VP warns of commodities price boom having long-lasting impact

Ongoing price spikes across the metals and mining sector could have an enduring negative impact on the commodities market, according to Wood Mackenzie vice president Robin Griffin.

A range of factors including the Russia-Ukraine conflict, thriving post-pandemic demand and continuing covid constraints on logistics have put supply chains under immense stress in recent months, triggering multiple price records for metals and mined commodities.

In a press note, WoodMac’s Griffin said that the exceptionally high margins across the mining sector cannot last forever, even if Russian metals production is cut off for an extended period.

“A look at notional margins miners enjoy suggests that the price rises are fragile at best. Margins are way above historical norms, and such a drastic divergence of price and production cost cannot last indefinitely,” he said.

The VP described a prolonged shift in Russian trade from Europe to China and India and the West’s lack of participation in the Russia’s metals and mining sector as ‘near certainties’.

“But even if we ignore for a moment the serious geopolitical impacts on trade, the price shocks themselves will also engender potentially long-lasting change,” said Griffin.

WoodMac added that the current commodity price spikes could lead to a more risk-averse approach from buyers, governments increasing regulation to manage the volatility and capital expenditure uncertainty among project developers.