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Commodities, winners and losers

A supply shock in raw materials leaves winners and losers, producers win and consumers lose.

In the current scenario, the shock is so broad that the profits of the producers must also be nuanced.

On the one hand, the impact is being very great in agricultural raw materials, which are an important component of family spending in developing developing countries.

This effect is amplified by the importance of Russia and Belarus in the production of fertilizers; the two countries account for a third of the world’s total potash production and natural gas is the basic component of the nitrogen production process. Fertilizer production had not yet recovered from the effect of the pandemic and this blow could lead to a significant reduction in harvests in 2022.

The disappearance of the Russian supply will, despite everything, be enough for countries like Brazil (oil and iron), Chile (copper) or Indonesia (oil, coal, nickel) to compensate for the effect with subsidies to their population.

Among the developed countries Australia is the most benefited. The US has a slight surplus in raw materials, which will undoubtedly increase in this context.

The most affected countries are in Asia -Korea, India and China are the ones with the greatest deficits in relation to their economy-. In Europe the impact at first glance seems minor, but, as we will see later, dependence on Russian gas makes us the main victims (economically, Ukraine’s human sacrifice is incomparable) of Russian aggression.

The case of China deserves a special mention; It is the main importer of agricultural raw materials in the world and food has a very high weight in the consumption basket. Inflationary tensions will hinder the stimulus capacity of your Central Bank and, if they are counteracted with subsidies, also of your government; in other words, the expansive policy in China may end up in the hands of the producers of agricultural raw materials (Brazil, Argentina) but above all, ironically, in the US.

The negative impact on China goes beyond the price of raw materials, Russia’s action will accelerate the relocation processes of strategic industries.

Joan Bonet, CaixaBank Private Banking.

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