Nickel, aluminium show signs of revival – by Peter Ker (Sydney Morning Herald – May 16, 2014)

They’ve been the dregs at the bottom of the diversified miners’ bottle for years, but nickel and aluminium are starting to show signs of life.

The two commodities have been bywords for poor performance over recent years, having dealt financial losses and multi-billion dollar impairments on their hapless owners at the big end of the mining industry.

But evolving attitudes in the developing world seem to be changing the rules of engagement in both industries, and tempting investors to think again. The nickel resurgence is more advanced and better understood.

Prices for the metal – used to create stainless steel – soared 56 per cent after January 10 when the Indonesian government placed a ban on certain raw metal exports.

The decision was designed to create jobs by forcing exporters to build processing plants on Indonesian soil, rather than exporting their raw ores overseas. As the world’s biggest nickel exporter, Indonesia’s removal from global trade has led to expectations of a shortage and price rises.

Local nickel miners like Western Areas have seen their share price almost double since January, while aspirants who could barely raise a cent in 2013, such as Poseidon Nickel, have seized on the mood to raise millions.

The rapid price rise was only halted this week, when the achievement of a new 27 month high convinced some investors it was time for some profit taking.

Nickel prices fell 10 per cent in recent days, but so long as the Indonesian ban remains in place, there is reason for optimism.

The same ban is tempting investors to think a renaissance in the aluminium industry is imminent too.

Exports of bauxite – the main ingredient for making alumina, which is then smelted into aluminium – from Indonesia have halted in the same way nickel has.

Bauxite prices have not responded in kind, but only because the Chinese alumina refineries prepared well and bought almost double their annual supply of bauxite in 2013.

Nor is bauxite an exchange-traded commodity, meaning it doesn’t attract speculators in the way nickel and gold do.
But Alan Clark, who runs the world’s top bauxite price index, said price rises may not be far away.

“If the Indonesian ban remains in place a year from now, stockpiles in China will be largely depleted, and that could have big ramifications for the 30 per cent of Chinese alumina refineries that currently use imported bauxite,” he said.

It’s a view that one of the world’s biggest aluminium producers, Alcoa, and its local joint venture partner Alumina Limited share enthusiastically.

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