Nickel producers are rallying on the back of an export ban (Credit: Australian Mining)

Nickel prices rallied to a five year high of US$18k/ tonne as reports emerged saying the Indonesian Government was planning to ban ore exports. As the largest nickel producer in the world, the Indonesian government’s decision will have a huge impact supply and demand. The news, while not yet official government policy, instantly caused an 8.8% rally in the commodity. The ban will require local miners to process raw materials domestically before shipping them overseas.

Small nickel Producers like Ardea Resources (ASX: ARL) have rallied more than 25% on the news. While this is greater than the underlying commodity price, it is important to note that nickel producers are leveraged plays on the nickel price. This is because miners make a profit from the difference between their production costs and the current commodity prices. To put that into perspective, a company which mines nickel at a cost of $15,000/ tonne, makes $1,000 an ounce when the nickel price is $16,000. If the nickel price rises to $18,000 a tonne, the miner sees their profit triple even if production is flat. Larger companies like Independence Group (ASX: IGO)only rose 12% this week, since they are generally more diversified and will not be completely exposed to one commodity like nickel. Regis Resources (ASX: RRL), a gold producer with exposure to an exploration phase mineral project, barely moved on the news as the asset is viewed by the market as immaterial to their business in isolation.

The reason why nickel prices rallied so much on the news is that there are already shortages projected in the market. If global markets had a glut of the commodity which would be partially cleared, there would be no demand pressures and the price would not be expected to rise. Nevertheless, the need for nickel in applications like batteries for electric cars keep the company’s share price rallying.

 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

September 3, 2019