The Western Areas Ltd (ASX: WSA) share price is among the top performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index on Thursday after the nickel price made a sudden spike earlier in the day.
The Western Areas share price surged 8.1% to $2.40 – making it the third best performer on the ASX 200 with the Galaxy Resources Limited (ASX: GXY) share price and Pilbara Minerals Ltd (ASX: PLS) share price taking the top two spots, respectively.
The unexpected 13% jump in the nickel price to US$16,690 per tonne in London to the highest since April 2018 was attributed to uncertainty over Indonesia’s export policy for the metal, according to Bloomberg.
The unexplained spike in nickel
Traders are having a hard time putting their finger on the cause of the rally but believe it may have something to do with speculation that Indonesia may tighten its policy on nickel exports.
The positive sentiment to the commodity spilled over to the Independence Group NL (ASX: IGO) share price, which climbed 5% to its highest level this month of $5.46.
However, nickel’s strong run may not last as it doesn’t seem to be backed by fundamentals even though it is a key input into batteries used in electric vehicles.
The thing is, the nickel price has already outperformed other base metals this year as it gained around 50% due to falling global stockpiles and the bright outlook for electric vehicle growth.
The market knows Indonesia is looking to restrict shipments of nickel as it tries to develop its downstream processing industry to become a higher value exporter, and some traders believe the country will tighten the rules sooner rather than later.
Near-term risks for nickel
However, there’s no official word from the Indonesian government and many in the market are left scratching their heads to explain nickel’s sudden surge.
But if this doesn’t come to pass, things could get ugly for the commodity, and by extension, Western Area’s share price.
Independence Group’s share price will also suffer but at least it has exposure to gold to help cushion some of the fallout.
The escalating trade war between China and the US is a drag on base metal prices as slowing industrial production will weaken demand for such metals. On the flipside, the uncertainty continues to support the gold price, which has rallied to a six-year high of US$1,500 an ounce.
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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.
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