Why nickel prices are surging

Nickel prices have surged nearly seven per cent in the past month with fears over supplies from Russia adding to Indonesian curbs on shipments of unprocessed ores.

Among base metals, nickel has been the best performer in the March quarter, gaining nearly 15 per cent. The rise is the most in the last four years.

On Thursday, nickel ruled near 11-month high of $16,115 a tonne for May contracts. In the domestic futures market, too, nickel has gained nearly 10 per cent. On MCX, nickel for delivery in June ruled at ₹985.20 a kg.

That nickel was expected to surge this year was no doubt, given the problems of supplies from Indonesia.

The unexpected factor that has aided the rise is Russia’s dispute with Ukraine over Crimea. A part of Ukraine until a few weeks ago, Crimea has voted to separate from Ukraine with Russia actively supporting the move.

The problem stemmed from the political uprising in Ukraine with the ouster of its president Viktor Yanukovych in February. Russia backs Yanukovych, who hails from Crimea.

While extending support to Crimea’s secession from Ukraine, Russia has also turned aggressive by deploying its troops in the region, angering mainly countries that form the North Atlantic Treaty Organisation (NATO) block. NATO, led by the US, has come up with sanctions against Russia, which along with the Philippines and Indonesia is the largest producer of nickel.

These sanctions, restricted to individuals till now, have led to fears that Russian export of nickel could be disrupted, pushing the market further higher.

Last year, Russia shipped out 2.83 lakh tonnes of nickel, down about five per cent from 2012.

A Bloomberg survey showed that China, which makes up for 44 per cent of the nearly 1.6 million tonnes annual demand for nickel, has inventories that can last five months. Analysts at Commerzbank AG say the nickel market still appears to assume that the Crimean crisis will escalate and that further-reaching sanctions will be imposed.”

While the Indonesia curbs with its Government banning exports of any mineral ore from January 12 this year, analysts at BNP Paribas said nickel had bottomed out in July last year.

Indonesia’s curb on ore exports is aimed at derive more value from its mineral resources in the face of weakening commodities market.

Indonesia accounts for a firth of the global nickel supply with exports in ore form about four lakh tonnes.

China is the major buyer of Indonesia ore to feed its stainless steel and nickel pig iron units. The ban resulted in China nearly doubling its purchases from Indonesia in January to 6.22 million tonnes.

Barclays has forecast that the Indonesia ban could result in nickel ore output plunging to 3.5 million tonnes this year. This will result in the market surplus shrinking to 40,000 tonnes from 1.81 lakh tonnes last year. Next year, it sees the nickel market facing a 36,000 tonnes deficit.

As a result, prices could top $20,000, the bank said in a presentation early in January.

Meanwhile, stocks in LME warehouses have increased to 2.83 lakh tonnes from 2.71 lakh tonnes on March 1.

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