Two of the best performing large cap shares on the local share market today have been nickel miners Independence Group NL (ASX: IGO) and Western Areas Ltd (ASX: WSA). At the time of writing the Independence Group share price is up 7% to $5.56 and the Western Areas share price is 6% higher to $3.79. These gains and those being made by sector peers BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), and South32 Ltd (ASX: S32) have led to the resources index rising a sizeable 2%. Why are Independence Group and Western Areas surging higher? The resources…
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At the time of writing the Independence Group share price is up 7% to $5.56 and the Western Areas share price is 6% higher to $3.79.
Why are Independence Group and Western Areas surging higher?
The resources sector was given a major lift overnight after commodity prices rose significantly on the London Metals Exchange.
One metal that performed particularly strong was nickel. According to the Financial Times, the nickel price jumped over 10% in what was the biggest one-day move in a decade amid concerns about Russian supplies of the metal following US sanctions against aluminium producer Rusal.
The nickel price rose to a high of US$15,875 a tonne during overnight trade, which is the highest level the metal has traded at since 2014.
Traders have been scrambling to get hold of the metal after speculation that sanctions on Rusal could be extended across other producers. Russian producer Norilsk Nickel is one being touted as a potential target.
According to the report, Russia provides approximately 10% of the global supply of nickel. So if the United States were to take action it certainly could lead to an undersupply of the metal and support higher prices.
In fact, according to Bloomberg, Eduard Haegel, asset president for BHP Billiton’s Nickel West facility, told those in attendance at a conference in Shanghai that removing Norilsk Nickel’s supply could lead the market to be undersupplied through 2025.
Should you invest in the nickel miners?
I’ve been a big fan of Western Areas for a while now and the recent rise in nickel prices certainly does make it even more attractive.
However, I am reluctant to invest on speculation such as this. After all, if sanctions are not ultimately placed on Russian nickel miners then the price of nickel is likely to come back down with a thud and Western Areas’ share price would be likely to follow.
So for now, I would suggest investors keep their powder dry and wait for the situation to develop further.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.