The Great Battle for Commodities – Morning Briefing Plus

Hello dear readers,

It has been four weeks since Vladimir Putin waged a bloody war of aggression on Ukraine. Four weeks in which Ukrainians have shown the world that they can withstand a seemingly overwhelming army. And four weeks in which Europe – and Germany in particular – had to learn how absurd their energy policies have been over the past few decades.

On this matter, US President Joe Biden traveled to Europe this week, with a long-awaited message: firm delivery commitments for American liquid gas. The USA wants to supply the EU with an additional 15 billion cubic meters of LNG in 2022, as the Brussels Handelsblatt office learned on Thursday in advance. “Biden has shown his appreciation for the Europeans,” my colleague Moritz Koch said yesterday. “Brussels and Washington have never worked as closely as they do now, largely due to Biden’s willingness to treat the EU as an equal partner.”

So far, however, there has simply been a lack of LNG terminals for such an energy alliance, to feed the additional gas quantities into the grid. But Economics Minister Robert Habeck can report success here, as we learned yesterday: the federal government has secured access to three floating LNG terminals.

The turbulence on the energy and commodity markets have shown the world very clearly in the past few days how fragile the global economy is. In our editorial conferences, we have repeatedly discussed at length how quickly the system of free world trade can get into trouble because supply chains break, because the supply of food is stagnant or simply because factories have to shut down due to a lack of raw materials – and what the consequences of all this are.

We have condensed the discussions of the past few weeks into a large report. Because it is also clear that the changes on the global commodity markets that we are now seeing are more than a temporary phenomenon. The geopolitical power strategies of the alliance partners China and Russia will permanently change the commodity markets and the world economy – with dramatic consequences for the German economy.

I have selected five charts for you that clearly show how far the new raw materials crisis is reaching:

Beware of a famine: The Ukraine and Russia were the granaries of the world – that has been sufficiently described. However, the fact that high gas prices are also leading to rising fertilizer prices is often overlooked. The reason: Ammonia, the most important ingredient in the production of nitrogen fertilizer, is produced from natural gas. This in turn means that many farmers in poorer regions can no longer pay for fertilizer, which aggravates the famine.

Danger for the e-car boom: Above all, the shortage of nickel, which is crucial for the production of batteries, endangers the transformation to electromobility. Nickel is an important component in the production of batteries – and a significant part comes from Russian suppliers. The delivery times for e-cars are likely to be significantly longer.

The situation is being exacerbated by a lithium price explosion – the raw material for lithium-ion batteries, which in turn power electric cars.

The already dramatic shortage of semiconductors is also getting worse – for a surprising reason: Ukraine is one of the most important producers of neon, a gas that is mainly used in the chip industry. Half of the neon resources needed worldwide come from companies in the Ukrainian port cities of Odessa and Mariupol. Bad news for the high-tech industry.

The energy transition is also faltering: Many raw materials are becoming scarce and much more expensive, including copper and platinum, which are required for the manufacture of wind turbines or the production of hydrogen, among other things.

What else has kept us busy this week?

1. It is the West’s response to the embargo debate: Vladimir Putin ordered last week that gas can only be paid for in rubles. This would make it easier for him to raise prices in the future, economists Axel Ockenfels and Achim Wambach analyze in the Handelsblatt. Nevertheless, the West should not be disturbed, because: “Fire cannot be extinguished with fire. The composure shown by NATO after the Russian nuclear deterrent alert was raised is a role model,” the two economists write.

2. In any case, one thing is clear: Putin is not making as much progress in Ukraine as hoped. But why is that? Two Handelsblatt interviews with well-known military strategists revolve around this question. Ex-US Major General Michael Repass believes Russian forces have failed. “The Russians are getting weaker every day,” he says. Repass can judge: the American was an advisor to the general staff in Kyiv until the end of January.

3. The US strategist Eliot Cohen, on the other hand, expects the Russian military to be defeated. “The Russians have mobilized the bulk of their operational conventional forces and they are suffering heavy casualties,” he says in the Handelsblatt. The Ukrainians, on the other hand, “know what they are fighting for”.

4. It’s a proposal that sparked debate: In the Handelsblatt, FDP Finance Minister Christian Lindner called for the TTIP trade agreement to be relaunched in order to reduce dependence on China. It is a proposal that should definitely be discussed. Because the West needs such an agreement more urgently than ever.

5. With all the horrific news reaching us from Ukraine: There are also a number of crisis winners. The world’s largest oil company Saudi Aramco, for example, more than doubled its profits in the past fiscal year. Things are looking similarly good for Shell, BP and Chevron. But the beneficiaries also include wind and solar park operators, who are helped by the current high prices on the electricity exchange.

6. You’ve probably heard of “black swans” – from those unpredictable, dramatic events that can change everything overnight. But, as I learned last week, there are also “grey swans”: These are the dangers that are only known in outline so far. And five of them threaten the international financial markets.

7. Now you might be wondering: What does that mean for my depot? Investment team leader Andreas Neuhaus has the answer. He describes which six stocks professional investors are now betting on.

8th. From my point of view, Annalena Baerbock is the biggest surprise in the Federal Cabinet. After all the mistakes in the election campaign, she finds the right tone in the Ukraine crisis – and sometimes says things with a clarity that one would have wished for from Chancellor Olaf Scholz. My colleagues Mathias Brüggmann, Silke Kersting and Jürgen Klöckner describe how the Green politician, who had very different plans, found her role in the crisis of the past few weeks.

9. Many readers of the Handelsblatt followed the diary entries of the young mother Tatiana Chontoroh, who reported two weeks ago in a diary in the Handelsblatt about her escape from Kyiv and the death of her son. Now she has arrived in Germany. “The flight to Dortmund is like a journey into a life that I no longer fit into,” she writes. “Germany is a beautiful country, but I want to go back to Kyiv as soon as possible. Until then, I will try to be of use to my country and to help people from here as well.” The story of the young mother is one that particularly touched our editors.

I wish you a sunny and relaxing weekend. As always, we will keep you updated 24/7.

It greets you cordially
Yours Sebastian Matthes

Editor-in-Chief of the Handelsblatt

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