Risk of more commodity price shocks ahead, warns G20 watchdog commodities
The G20's financial watchdog warned that more commodity price shocks could be in store after COVID-related supply chain issues and Russia's invasion of Ukraine.
"The COVID-19 event, subsequent supply chain bottlenecks, and the Russian invasion of Ukraine in February 2022 led to a surge in the price of key commodities and extreme volatility in some commodities and related derivatives markets," the report said."This induced a spike in margin calls, resulting in an increased demand for liquidity by commodities firms and other market participants to meet those calls, and the emergence of liquidity strains in some markets.
Overall, the FSB concluded that there was no major market disruption besides the London Metal Exchange nickel. And the impact on the rest of the financial system was limited. "Such a move has also increased counterparty credit risks in the commodities ecosystem. There are also indications that certain players in European commodities markets may have reduced their hedging of commodities prices due to the increased margin calls. While this again reduces funding liquidity risks, it raises commodities firms' market risks," the report described.
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