In a dramatic turn of events, all eyes are now on this versatile white metal, whose price bottomed out just 4 months ago but is now roaring at a one-year high…
With a few rare exceptions, most of us would agree that the metals industry overall was pretty dismal over the past year.
Copper sunk mid-year, and after a brief recovery, is now testing new lows.
Aluminum has been on a gradual decline. Rhodium lost more than 15% in 2013.
Both lead and palladium may have ended up more or less level from a year ago, but their roller coaster performances were hardly anything to cheer about.
The first quarter of 2014 however, has shown some promise, as some of these metals have demonstrated flashes of positive growth.
Any inkling of an upturn is always a welcome relief for metal investors, but perhaps the biggest surprise thus far has been the dramatic rebound of nickel.
Since hitting a low of nearly $6.00/lb at the end of November — and testing that again at the start of January — spot nickel prices have soared 39% in just five months to hit $8.35.
This is in stark contrast to the 36% drop nickel experienced in the first half of 2013, which made it the worst performing of all the base metals.
Why the sudden surge? One of the biggest catalysts propelling nickel is the ongoing crisis in the Ukraine.
The Might Of Mother Russia
Russia is the 3rd largest producer of nickel in the world and has the 4th largest nickel reserves.
One Russian miner in particular, Norilsk Nickel (OCTMKTS:NILSY), carries the lion’s share of the country’s supply. It accounts for a mind-boggling 17% of global nickel production each year.
For 2014, Norilsk is expecting output to be in the range of 225,000 – 235,000 tons, which is on par with last year. The only difference is that the Company can expect to generate far more revenue now that prices have spiked.
You see, the US and EU have already imposed a number of sanctions on Russia for its involvement in Crimea…but the potential for the Russian nickel market to fall under threat is what’s been driving both NILSY’s stock and nickel prices the past four months.
In a forecast by Barclays Plc, global nickel surplus could be slashed by nearly two-thirds to just 68,000 tons from 207,000 tons in 2013.
With the turmoil growing wore by the day, we may be in the midst of a full-blown bull market for the white metal that could send it to historic territory.
That being said, the Ukraine crisis isn’t the only factor boosting nickel’s swift recovery.
The Jakarta Conspiracy
Russia as a top 3 producer trails behind global nickel leader, Indonesia by quite a wide margin.
Last year, Indonesia mined some 440,000 tons of nickel which put it slightly ahead of number 2-ranked Philippines.
But in 2014, Indonesia could fall considerably down the ranks, which, according to Reuters, is being done deliberately.
Early this year, Indonesia implemented a new mining law which banned bauxite and nickel ore exports.
The law was apparently in response to a six-month lobbying campaign last year in which Russian aluminum giant, United Company Rusal and Norilsk Nickel delivered a blunt message to Indonesian officials: We will only invest billions of dollars in smelters if you ban bauxite and nickel ore exports.
Indonesian officials have denied the claim of Russian influence.
Nevertheless, the speculation alone has helped to further lift nickel prices as well as that of aluminum.
Indonesia is the biggest supplier of nickel ore to the Chinese economy, which uses the base metal to make stainless steel. Last year saw 45 million tons of ore shipped to the Middle Kingdom.
Should the ban remain in place for the rest of the year, China will be severely short on supply which, along with Russian sanctions, could blast nickel prices through the roof.
Despite the threat of economic sanctions against Russia, Norilsk could be a profitable bet right now.