Nickel price soars on supply concerns
Good news for Canadian juniors
I think we’re on track to get back
to 2006, 2007 prices
The jaw-dropping rally in nickel prices shows no signs of slowing. At least not yet.
When the Indonesian government introduced an export ban in January that severely curbed nickel supply, industry insiders predicted it would have a profound effect on the market. But they were largely ignored by the investment community, which had little interest in nickel after nearly three years of dismal performance by the metal.
In retrospect, the insiders were right. Nickel prices have soared more than 50% since the export ban came into effect. Prices rose more than 5% at one stage on Monday, climbing above US$9.50 a pound. That is the best level since early 2012.
“We’re cheerleading this morning,” said Rick Mark, chairman and chief executive of North American Nickel Inc. “I was amazed to see it up another US30¢. It’s remarkable that we’ve had two US30¢ days in the space of three or four days.”
Indonesia is responsible for roughly 28% of global nickel production. The export ban on unprocessed ore is part of an effort to encourage more value-added processing within the country.
Nickel is also running up on speculation that Russia could be slapped with harsher economic sanctions that could affect OAO Norilsk Nickel, the world’s largest refined nickel producer. And in New Caledonia, mining giant Vale SA recently halted output because of an acid spill.
The speed of the nickel rally caught nearly everyone off-guard. But there is plenty of debate about where prices go next.
The nickel bulls claim that prices need to go higher, as inventories are running down and Chinese refiners need a stronger price to make money (because they are paying much higher rates for unprocessed ore due to the Indonesian ban). New discoveries have also been few and far between.
“I think we’re on track to get back to 2006, 2007 prices. US$15 [a pound] or more,” said Mark Selby, interim CEO of Royal Nickel Corp. He thinks inventories will run out in 2015 or 2016 at the current pace. The skeptics say the world is still awash in nickel supply, with large new mines entering production in recent years and relatively high inventories.
Bart Melek, head of commodity strategy at TD Securities, said he expects a surplus of 70,000 tonnes in the nickel market in 2014, which follows even bigger surpluses in the prior two years. While he expects the market to sink into deficit next year, he is not remotely concerned about supply shortages.
“There is concern the market may be in a tight (spot) the next while,” he said. “Judging by all the inventories built over the last few years, we really don’t think this will be a huge issue in the next few months.”
Mr. Melek also said the export ban could get reversed by the Indonesian government, given that it has resulted in thousands of job losses. But Mr. Selby said the ban is largely supported by the population and is not a major issue in the upcoming presidential election this summer.
The rise in prices has been great news for nickel-focused companies in Canada, which are enjoying a surge of attention from investors. There are few of them left after the takeovers of Inco Ltd. and Falconbridge Ltd., and they are all juniors: Royal Nickel, North American Nickel, First Nickel Inc., Anfield Nickel Corp. and Victory Nickel Inc.