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Indonesia Ban, Russia-Ukraine Tensions Stoke Concerns Over Supply
Nickel prices are soaring amid growing concern about the availability of supply from Indonesia and Russia, the top two producers of the metal.
The price of the industrial metal, which is used to make steel stronger and more resistant to corrosion and extreme temperatures, hit a 14-month high on Thursday, bringing year-to-date gains to 29%.
Driving up prices in the $25 billion nickel futures market is a supply shortfall caused by a recently introduced export ban in No. 1 producer Indonesia, analysts and investors say. Further adding to the worry about global supplies is the situation in Ukraine: Some traders fear that nickel miners in Russia, which ranks second in terms of output, could face sanctions if tensions escalate. Together, the two countries account for more than a third of world nickel output.
If the export ban isn’t quickly resolved, analysts and investors expect supplies of the metal to fall short of global demand for the first time since 2010. Tensions regarding Indonesia and Russia have put the nickel market on a different footing than that of many other industrial metals, such as aluminum, where supplies are more plentiful.
With no end in sight for either situation, “the nickel market has started to panic,” said Patricia Mohr, a commodity market specialist at Scotiabank.
Nickel for delivery in three months rose 0.3% on Thursday to $17,925 per metric ton on the London Metal Exchange, the highest price since February 2013. Metal markets were closed on Good Friday.
Indonesia, the world’s largest nickel producer, hasn’t allowed any exports of unprocessed nickel ore in three months. In January, the country banned exports of nickel ore and other raw commodities in a bid to broaden its economy by forcing miners to perform the lucrative task of refining their metal inside the country. Miners argue that the sprawling nation lacks the infrastructure to economically produce finished metal.
Many traders and investors had anticipated a quick fix—a repeal or relaxation of the export ban by the government—but Indonesia has held firm. Barring a resolution in the near term, supplies of the metal won’t be enough to meet demand for the rest of the year. Barclays BARC.LN +3.77% PLC analysts estimate the market was in surplus in the first quarter, but will see a deficit of 27,000 tons over the rest of the year, and a deficit of 111,000 tons in 2015.
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