Supply squeeze will send the price of nickel soaring

It’s been a good year for nickel. After a two-and-a-half-year bear market, the price of the metal – a key ingredient for making stainless steel – has soared by 50% in 2014, and by 12% in the first two weeks of May alone.

The rally is largely due to “tensions in Ukraine and possible sanctions on Russia [which] raised concerns over the supply of the metal”, says Vladimir Zernov on Fool.com. Russian firm Norilsk Nickel is the world’s largest producer, so a ban on exports from the country would have a very substantial impact on the market.

The risk of an interruption to Russian supplies comes on top of Indonesia banning the export of nickel ore in January, along with other metal ores such as copper. The government is aiming to move up the commodity value chain by forcing producers to process ore in Indonesia rather than ship it abroad in its raw state.

However, with inadequate smelting capacity in Indonesia and new plants requiring substantial investment, the immediate impact of the ban will merely be to create a shortfall in the global nickel market.

The government claims that up to nine new nickel smelters may be finished this year, but this is widely considered unrealistic.

As a result, analysts at Citigroup expect global nickel supply to be in deficit by more than 130,000 tonnes next year, compared with a small surplus this year. The bank forecasts that prices could hit $30,000 per tonne, from around $20,000 at present.

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