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Indonesia’s export ban and concerns about sanctions on Russia helped make nickel April’s best-performing commodity. Many believe the metal’s success is likely to continue.
Nickel prices are on a tear. Since January 12, when the Indonesian government surprised nickel market participants by going through with its plan to ban unprocessed ore exports, the metal has risen precipitously.
In terms of just how precipitously, the numbers speak for themselves. Though the metal’s gains were modest at first, by mid-March, London Metal Exchange (LME) nickel for three-month delivery had reached an 11-month high of $16,230 per metric ton (MT). That positive performance continued in April, when nickel was the best-performing commodity; most recently, LME nickel for three-month delivery hit $18,250 per MT, as per the Financial Times.
As one Singapore-based metal trader told the news outlet, “[i]t’s simple: the ban stays in place, the nickel price goes up further. Prices above $20,000 are perfectly plausible.”
That sounds promising for those who are bullish on nickel, but is it really that simple? Unsurprisingly, the short answer to that question is: “no.” While the ban is certainly significant, since it was put in place another factor has begun to influence nickel prices: Russia.
Russia’s nickel price impact has been building since early this year, when the Supreme Council of Crimea voted to secede from Ukraine following a referendum in which an overwhelming majority of Crimean citizens voted to join Russia. The referendum was quickly declared invalid by the United Nations, but that hasn’t stopped countries like the United States, Canada and Germany from expressing their disapproval of Russia by enacting sanctions on the country.
That’s where nickel comes in. As Forbes notes in a recent article, those sanctions have some analysts concerned about nickel supply, largely because Norilsk Nickel (MCX:GMKN), the world’s biggest producer of the metal, is a Russian company and “has been targeted [as] one of the more likely recipients of strict economic sanctions.” Bank of America-Merrill Lynch, for one, “fully expects the metal to strike $25,000 within the next 12 months” as the Indonesian ban and potential curbs on Russian output drive stocks to “critically low levels” and perhaps push the market into deficit.
Others are less convinced. Dmitry Kolomytsyn, a Morgan Stanley (NYSE:MS) analyst based in Moscow, told Bloomberg earlier this month that “Norilsk is too large a company to be seriously affected by any possible trading sanctions. It has the strongest financial balance, especially after the ruble weakened, with almost all of its revenue coming from exports.”
Amidst those conflicting views it’s tough to say exactly what the nickel price will do. However, even the more negative nickel outlooks still place the metal’s price higher than it was at the beginning of 2014. A recent Capital Economics report, for instance, states that nickel should still be at $17,500 per MT by the end of the year even though the recent uptick in price “is looking premature at best and, at worst, overdone” given that “stocks have only just started to slip.”
That, it seems, is a fairly good sign for the base metal.
Company news
This past week hasn’t brought a huge amount of company news in the nickel space. That said, there has been some commotion regarding Sherritt International (TSX:S), which on April 30 released its results for the first quarter of 2014. The company recorded a loss of $48.2 million, or $0.16 per share, down fairly significantly from earnings of $23.1 million in the year-ago quarter. Responsible for that decline, said Sherritt were “higher financing expense related to foreign exchange losses as a result of the weakening of the Canadian dollar against the U.S. dollar” and “depreciation, depletion, and amortization being recognized at Ambatovy for the first time following the declaration of commercial production in January 2014.”
Unfortunately for Sherritt, not all shareholders have accepted that explanation. Following the company’s results release, a group called Concerned Sherritt Shareholders put out a press release calling for “new directors on the Board and fundamental changes at the Company.” Luckily for the company, the higher nickel price makes the group’s call to action less urgent, at least according to Taylor Asset Management’s David Taylor.
Junior company news
On the junior side, Duluth Metals (TSX:DM) reiterated last week that through its Twin Metals project, located within the Duluth Complex mining camp in Northeastern Minnesota, it is poised to take advantage of the positive nickel market circumstances discussed above.
Christopher Dundas, chairman and CEO of Duluth, said, “[t]he importance of the nickel resource may significantly increase with the growing discussion about the nickel market potentially moving into a deficit next year. We are also seeing political issues that may further influence the price of nickel to move upwards such as the Indonesian government ban on raw material (nickel/ore) exports and the potential disruption of supplies from Russia, one of the world’s largest nickel producers, as a result of the tensions in Europe.”
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Long-awaited Indonesian Export Ban Sends Nickel Market Reeling
Nickel Price on the Rise; Vale Predicts Further Gains in 2015