"High Raw Material Prices to Persist for a Long Time Even After the End of the Ukraine Crisis"

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[Asia Economy Reporter Seo So-jeong] An analysis has emerged suggesting that even if the Ukraine crisis ends in the future, high raw material prices are likely to persist for a considerable period.

On the 24th, the Bank of Korea stated in its Overseas Economic Focus report, "International raw material prices have remained high even before the Ukraine crisis due to factors such as rapid economic recovery after the pandemic shock and continued supply-demand imbalances caused by strengthened carbon neutrality policies."

In particular, the strengthening of the carbon neutrality stance has limited crude oil production capacity by reducing investments related to fossil fuels, which is likely to act as upward pressure on oil prices during the upcoming economic recovery period.

The rise in fossil fuel prices increases production costs for non-ferrous metals and grains through higher electricity and fertilizer prices, further exerting upward pressure on other raw material prices.

Additionally, as the European Union (EU) and others reduce their dependence on Russian raw materials, there is a possibility of unexpected supply-demand imbalances due to substitute supply volumes not meeting demand, which cannot be ruled out.

Major forecasting institutions also expect that although uncertainty related to the Ukraine crisis remains high, international raw material prices will decline after the second half of this year, but supply-demand imbalances will persist, maintaining high levels. The prevailing view is that sanctions against Russia will not be lifted immediately even if the Ukraine crisis ends.

The report stated, "Following the Ukraine crisis, investments related to renewable energy are expected to expand to reduce dependence on Russian energy, leading to steady increases in demand for non-ferrous metals such as aluminum and nickel," and added, "While the end of the Ukraine crisis will act as a short-term factor for lowering international raw material prices, structural supply-demand imbalances are unlikely to be resolved quickly, so high raw material prices are expected to persist for a considerable period."

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