As Nickel Continues its Slump, Hope Remains

As nickel continues its slump from early year highs, companies are dealing with one of the surprise stories of the year. Though interest in the base metal dramatically picked up in January as Indonesia banned ore exports and the Philippines threatened to follow suit, since September it has been in a steady fall.

Despite that decline, there is some hope for nickel, which remains a tough competitor in the resource space.

The rise

Nickel prices spiked in May, climbing to $9.50 per pound. The growth came on the back of Indonesia — the world’s largest supplier of the ore — deciding to halt exports in an effort to stimulate its economy. Indonesia supplied about one-third of the world’s nickel in 2013, equivalent to 834,200 tonnes. As a supplier, Indonesia sold most of its nickel to China (the greatest user of the metal). With no Indonesia to help supply, prices started climbing over fears of a nickel deficit.

Prices started to ease over the course of the summer only for a congressman in the Philippines — responsible for producing 315,600 tonnes of nickel last year — to announce he would be looking into having a bill passed that would follow Indonesia’s move and ban ore exports. Again, nickel prices picked up.

The fall

But the rise was shortlived. The discussion about the Philippines banning nickel exports cooled down, with government officials saying the bill wouldn’t be debated until mid-2015. On top of that, a growing US dollar and China finally easing the throttle on its enormous economy prompted drops.

Since it hit its peak in May, the metal has dropped 24 percent.

According to the Financial Times, China had been holding on to hidden inventories of nickel and has finally released them

Still the metal to watch

While there is some doom and gloom around the metal’s current performance, hints of optimism are shining through. Nickel is approaching the mark it started the year on — around the $6 range — and is still far above lows seen in 2013.

Australia is a particular bright spot. The Wall Street Journal reports that the country’s weakening dollar has helped protect its nickel miners from the damage other mining companies have faced. Indeed, nickel prices Down Under have only fallen 6 percent, far below what the rest of the world has seen.

According to the publication: “As the local currency falls, Australian companies get significantly more income when repatriating their U.S.-denominated earnings. That’s a big benefit for nickel miners including Western Areas and Independence Group, which count nearly all of their costs in Australian dollars.”

And, as Nickel Investing News reported in September, Australia’s Fraser Range is still being scoped out by companies such as Vale (NYSE:VALE), showing there is still lots of life in the metal in that area.

Australia aside, the Financial Times points out that if Indonesia holds its nerve and refuses to ease up on ore exports then there will likely be a lack of supply in the market worldwide. The Philippines won’t be able to handle demand from China and make up ground for the rest of the world.

“Nickel is still the metal to watch for in 2015,” Colin Hamilton, an analyst with Maquarie, told the publication.

Securities Disclosure: I, Nick Wells, hold no direct or indirect investment in any of the companies mentioned.