At the time of writing the shares of the two nickel producers are up 8% and 13%, respectively.
This compares to a small decline by the benchmark index.
Why are Independence Group and Western Areas charging higher?
Investors have been scrambling to get hold of the two companies’ shares this morning after nickel prices rocketed higher.
According to the Financial Times, nickel prices surged by almost 9% on Friday to their highest levels in four years after Indonesia announced that it would ban exports of raw ore in December.
The benchmark nickel price on the London Metal Exchange ended the day 8.8% higher at $US17,900 per tonne, marking its biggest one-day gain in a decade.
As Indonesia is the world’s largest producer, there are concerns that the ban could lead to a shortage of nickel, which is a key ingredient for stainless steel and electric vehicle batteries.
The report explains that Indonesia has decided to bring forward a planned 2022 ban in order to attract more processing business instead of just exporting raw materials.
In respect to nickel, it is understood that Indonesia wants to use its abundant nickel reserves to build an electric car industry.
It appears to be making good progress with this goal. Last year Chinese battery materials company GEM revealed plans to work with battery making giant CATL and stainless steel producer Tsingshan to build a US$700 million plant in Indonesia to produce nickel for batteries.
Should you invest?
Given how tight nickel markets are likely to become, now could be a good time to consider Independence Group or Western Areas if you’re looking for exposure to the resources sector.
However, I would still prefer to gain exposure to nickel through a diversified miner such as BHP Group Ltd (ASX: BHP). Especially after a recent pullback in its shares left them trading at an attractive level.
Alternatively, these blue chips could be even better options due to their growing earnings and dividends.
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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.