Nickel takes the prize for being the most volatile of the base metals and while it is hovering around the low point of where it has traded since 2004 it seems to have finally found a base.
Nickel takes the prize for being the most volatile base metal, and while it is hovering around the low point of where it has traded since 2004, when the mining boom started to gain traction, it does seem to have found a base in the vicinity of $US5.70 a pound.
Analysts at UBS noted last week London Metals Exchange’s (LME) nickel inventory stood at about 460,000 tonnes and that over the past two weeks stocks had eased a total of 12,000 tonnes in 11 straight days of declines.
The broker also said cancelled warrants could potentially be a lead indicator of physical metal demand. A substantial increase in April imports from China strengthens nickel’s macroeconomic case.
UBS is forecasting a significant increase in price in 2016 and sees the current sub-$US6 a pound price as representing good value. The broker expects demand from China to drive the metal to $US8 a pound in 2016, representing an increase of 40 per cent on current levels.
AFR Smart Investor identifies three stocks that stand to benefit from a rebound, including two that tend to fly under the radar.
Western Areas is the largest ASX-listed pure nickel play, with a market capitalisation of about $800 million. Independence Group, while diversified, is a large producer and should its merger with Sirius Resources go ahead its long-term production profile will be enhanced significantly.
However, for investors seeking substantial leverage to a nickel rebound, combined with near to long-term earnings visibility, Western Areas is arguably the pick of the three stocks. In mid-June the group strengthened its position with the cash acquisition of the Cosmos Nickel Complex (CNC) in Western Australia.
The project was acquired from Xstrata Nickel Australasia for $24.5 million in a transaction analysts from Bell Potter described as an affordable, low-risk growth option. In particular, the broker pointed to the fact that 65 per cent of the resource was in the “higher confidence” measured and indicated category, which can potentially be converted into reserves.
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