On the London Metal Exchange, nickel for delivery in three months jumped 2.2 percent to settle at $17,790 a metric ton. Earlier, the price reached $17,917, the highest since Feb. 19, 2013. The commodity climbed for the 11th straight session, the longest advance since Oct. 6, 2010.
Nickel has ridden the longest rally in close to 40 months as the aftermath of a ban by Indonesia on exports of unprocessed mineral ores in January and concerns about Russian supply sank in. Indonesia’s ban that took effect in January and escalating conflict between Russia and Ukraine will send the metal’s prices higher.
Everything started in January, when one of the world’s major nickel suppliers, Indonesia, imposed a ban on exports of some unprocessed types of nickel, in a bid to try and lure miners to build processing facilities on Indonesian soil. After years in the doldrums, the reduced exports sparked a rise in nickel prices that is still underway three months later.
“The Indonesia story has not changed … there is no sign yet that there might be any reversal of the policy,” Natixis analyst Nic Brown said. “And I think when you hear the Americans starting to talk about potential sanctions on Russia, people instinctively look at palladium and nickel: two metals that could be affected either by sanctions or by Russian retaliation.”
Mr William Adams head of research for Fastmarkets said that “Nickel ore stocks have gone up because those holding them are holding them in tighter hands, (so) stainless mills will at some stage start using refined nickel. But nickel is running ahead of itself. People are going to start looking for cheaper sources of nickel, be that LME stockpiles or nickel pig iron (made) using higher cost nickel ore from the Philippines.”
The price of 1.8% nickel ore in China has risen 32% over the past four months, to $73.40 a metric ton from $55.70, Sydney-based AME Group said in a report. The consulting firm said the stockpile of Indonesian nickel in Chinese ports, estimated at 20 million metric tons before the Indonesian ban, ended March at 15.1 million metric t ons, down 14% for the month—a decline that suggests “strong demand.”
The ban has the potential to be a game-changer for nickel, which has been plagued by oversupply and high inventories, according to several analysts. China relies heavily on laterite nickel ores from Indonesia to produce nickel pig iron, a cheap alternative to refined nickel.
If this supply is permanently cut off, China will be forced to reduce its use of nickel pig iron and buy higher-grade metal for use in its smelters. This, in turn, will reduce stockpiles of nickel that have built up since the global financial crisis.
Nickel markets could repeat price spikes witnessed during the 2006-07 global supply shortages if Indonesia maintains its export ban, according to Macquarie Group. “The current rally is in line with our expectations…that prices would rally towards $20,000/t by the end of 2014, but is well ahead of where we would have predicted the price to be by now,” said the investment bank in a note to investors.
“In the absence of a change in Indonesian policy, we think that by 2016, the market will get tighter than it did in 2006/07, when prices traders in the $30-50,000/t range.”
“We now think that this ban will lead to a small deficit this year (we previously thought this year was in surplus) and then enormous deficits in 2015-18,” said Macquarie. “We expect stocks to run down dramatically over the coming years.