1. Rouble’s fall hits commodities

Rouble’s fall hits commodities

A 25% crash in the Russian rouble against the dollar since September, when the latest Western sanctions...

By: | New Delhi | Updated: November 8, 2014 9:49 AM

A 25% crash in the Russian rouble against the dollar since September, when the latest Western sanctions were imposed, may have aided the broader slide in commodity prices, reports Banikinkar Pattanayak in New Delhi.

Plentiful supplies in times of lingering concerns about demand for raw materials in China and the EU are to be largely blamed for the latest bout of commodity crash. However, according to analysts, as it happens with a sanctions-hit country desperate to find buyers of its products abroad, Russia is being asked by importers to offer discounts in dollar terms. The logic: Given the weak rouble, such discounts won’t necessarily hurt them in real terms. This, in turn, is impacting the already-sliding commodities, as prices of most of the items that Russia exports — including crude oil, precious and base metals, iron, steel and wheat — are denominated in dollars.

Rouble

Russia is being asked by importers to offer discounts in dollar terms. The logic: Given the weak rouble, such discounts won’t necessarily hurt them in real terms. This, in turn, is impacting the already-sliding commodities, as prices of most of the items that Russia exports — including crude oil, precious and base metals, iron, steel and wheat — are denominated in dollars.

Russia-Export

In May, after the first series of sanctions, Russia was forced to expedite a $400-billion gas deal with China after a decade of failed negotiations, with analysts widely believing the Chinese managed to get a huge discount. A second deal is expected between the two countries soon. Sanction-hit Iran too had to yield to Chinese demand for cheaper oil. Although bilateral deals are largely country-specific, they sometimes set the benchmark prices of exports for others as well.

In May, after the first series of sanctions, Russia was forced to expedite a $400-billion gas deal with China after a decade of failed negotiations, with analysts widely believing the Chinese managed to get a huge discount. A second deal is expected between the two countries soon. Sanction-hit Iran too had to yield to Chinese demand for cheaper oil. Although bilateral deals are largely country-specific, they sometimes set the benchmark prices of exports for others as well.

Moreover, since a currency devaluation can potentially improve domestic manufacturing due to lower cost of production, in dollar terms, from locally-sourced raw materials, Russia has reported higher activities in industries, including food processing and metallurgy. This has further raised supplies in an export market already experiencing a glut in many commodities.

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