Nickel prices have soared over the past 42 months and are up 28% this year alone, with more large gains likely to come.
This may well be the time to have a closer look at some of the ASX’s top nickel miners, including Western Areas Ltd (ASX: WSA), Panoramic Resources Limited (ASX: PAN), Mincor Resources NL (ASX: MCR), Poseidon Nickel Ltd (ASX: POS) and explorer Sirius Resources N.L. (ASX: SIR).
All five stocks have soared in the last week, with Mincor up 18.6%, Panoramic 14.6%, Poseidon 11.6%, Western Areas 7.9% and Sirius up 6.6%, as nickel prices hit 13-month highs. LME Nickel is trading above US$17,000 a tonne – around US$8/lb, after hitting lows of around US$6/lb mid-last year, a level not seen since early 2009.
UBS analysts say this is no flash in the pan, and nickel – a key ingredient in stainless steel – is expected to rise even higher. Scotiabank is predicting prices of US$9/lb in 2015 and US$10/lb in 2016.
Much of the price gains are due to an expected shortage of nickel. Indonesia, the world’s largest producer barred exports of raw mineral ores in January, while Russia, the leading producer of refined nickel, faces more sanctions from the US and Europe over the annexation of Crimea in the Ukraine.
Citigroup says inventories in China may last from 8 to 12 months, but many of the smaller producers could begin to run out of Indonesian-sourced ore as early as the end of this month. Societe Generale SA said in a report that the Indonesian ban “alone is likely to shift the nickel market from structural oversupply to large deficits over the coming years”.
Strong global growth is also likely to drive nickel demand for usage in stainless and non-stainless products.
As always, resources stocks are utterly dependent on the commodity price. Should the Russia-Ukraine situation resolve itself peacefully in the short-term, that would add downward pressure on the commodity price and likely to negatively impact on the nickel miner’s share prices. The Indonesian ban is expected to continue, which should be positive for the nickel miners. Given the impact it has had already, it seems likely that we’ll see higher nickel prices over time.
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Motley Fool writer/analyst Mike King owns shares in Sirius Resources. You can follow Mike on Twitter @TMFKinga